Friday, May 25, 2007

Fuss over oil

I disagreed with what Dealbreaker's Joe Wiesenthal quipped this morning about rising oil prices on fears of the gas supply.

Oil Rises on Concern Over Gasoline Supply, Nigerian Oil Strike (Bloomberg)
Ok, we're not going to go through the whole rant about these kinds of articles. That'd be boring. Besides, if you've ever read the Opening Bell before, you've heard everything we have to say on this subject. But, there's just one question that we have. How does oil rise on concerns over the gas supply? Doesn't gas come after oil? Should gas rise on concerns of the oil supply, not the other way around? Wouldn't that be like saying the price of apples has gone up, as people are worried about an apple pie shortage?

I don't think that his analogy works, because it makes perfect sense. If you're worried about apple pie reserves, that's going to raise the spot price of apples as people stock up on the basic ingredient. I would also expect pastry dough to rise in demand.

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