My Daughter

My Daughter
Remember when you learned how to do this?

Wednesday, May 07, 2008

Positive feedback for oil prices

Often overlooked in the grand scheme of things, is the dependency of oil producers on their own products.

We tend to look at the downstream effect of higher oil prices on the various markets which are dependent on the products refined from oil. If this logic is correct, that as oil's price soars higher the price of these products which depend on oil also rise, then the same logic must hold true for oil production itself.

This feedback loop means that as oil becomes more expensive it becomes even more expensive to locate, extract & produce that oil. Which in turn, causes even higher oil prices, which again raises the cost of oil production.

You get the idea...

This compounding effect becomes more & more pronounced the higher the relative price of oil climbs, creating a cascading effect which will eventually lead to price "super-spikes" where large jumps in price may happen very quickly compared to traditional inflation.

Because markets can't adjust quickly to these super-spikes, the potential for collapse of markets becomes a realistic fear as oil continues it's meteoric climb skyward.

Your dog wants blissful ignorance.

1 comment:

Fredric said...

Very interesting post, great for argumentation. We simply cannot wait any longer to build alternative energy sources.