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May 19, 2006


There is one factor that you omit in your analysis of the "cause" of high prices.

In a "normal" market your supply/demand argument is entirely correct.

There are some commodities - oil would be one of the majors, gold may be another - where the market is trading in future supply; so the price that NZ uses for comparative purposes (Brent Light Crude) is this morning "for supply August 06".

The "trading price" that we see for oil is not "today's price".

It is the market's bid for oil to reach the US (in your case?) in June or July.

That means that other factors impinge upon the supply/demand argument, most critical of which is the risk that that future supply may not be possible.

A very large part of the profit that the oil companies make is due (I suspect, without any corroborative evidence at all) to being able to use that "risk factor" to pump their own prices...

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