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Once total inventory gets below a certain point, there will be no buffer, the market is going to freak out and oil will go ballistic. Keeping the price artificially low will stimulate demand and suppress supply accelerating the onset of the shortage and price spike. It is the exact opposite of what you would want to do prevent an actual shortage from occurring. So instead of opening up a pipeline to Canada or allowing the market to increase domestic production, they'll reduce the security that the reserve is meant to provide.
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Once total inventory gets below a certain point, there will be no buffer, the market is going to freak out and oil will go ballistic. Keeping the price artificially low will stimulate demand and suppress supply accelerating the onset of the shortage and price spike. It is the exact opposite of what you would want to do prevent an actual shortage from occurring. So instead of opening up a pipeline to Canada or allowing the market to increase domestic production, they'll reduce the security that the reserve is meant to provide.
It’s not so much the release of the reserves it’s the stated intent. Effectively so far we’ve just had an indication that he’s going to say he will release reserves and already it has reduced prices significantly. If it comes to them actually having to follow through I’d be surprised.
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@catogrande its the Saudis that arent playing ball isnt it, get them into upping production will ease things off at the pump.
While there really is endless buyers for oil in the current world we live in, the theory would be is if the US release reserves it eases pump prices, obviously this will hurt the Saudis so they up thier production slightly to take some heat while maintaining high prices, win win...
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I'm not sure that's quite right. There is no shortage of oil, there are no queues at the filling stations, no restrictions on amounts you can buy. There has been no real increase in the cost of extracting and refining crude oil. The high levels of volatility we've seen recently are down to speculation about future supplies. Given that the oil that is providing the petrol we are buying today was probably refined back when Brent Crude was under $70 a barrel it has never been about costs.
Where I'm sure that you are right is that the real player here is Saudi. If they reduce their prices or turn on the taps a bit more it will have a significant impact and maybe Biden is showing them as much as anyone that he is (maybe) prepared to do something about this spike in prices.
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If they do through with it, it had better work, because if it doesn't, you have the situation of the US govt having to replenish its emergency supplies when it might be $100+ barrel. What could possibly go wrong?
That's assuming that the US just holds a giant tank of oil that they extracted back in 1974 rather than simply holding back a degree of the ongoing output...
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@catogrande I didn't think I was implying a shortage.
Didn't Biden ask the Saudis to increase production at the start of the war, but they have thier own agenda before this will happen (aside from money)
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@taniwharugby said in Inflation:
@catogrande I didn't think I was implying a shortage.
Didn't Biden ask the Saudis to increase production at the start of the war, but they have thier own agenda before this will happen (aside from money)
Ah, I misunderstood that bit. Apologies.
I think there has been much discussion about how to manage the current volatility and too many conflicts of interests. If the Saudis were not listening to the US, maybe thinking Biden is weak, then perhaps this latest utterance is to persuade them otherwise. What is virtually certain is that, for the Saudis at leat, this is more than just the price of oil. So we agree on a broader scale.
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It’s all under control.
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@kid-chocolate the Biden takes over line is irrelevant. Inflation is up globally. Domestic policies anywhere are pretty much irrelevant.
Other than printing money in the early days of the pandemic to keep the economy(s) from tanking.
Which was on Trumps watch.
Which is also irrelevant.
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@kid-chocolate the Biden takes over line is irrelevant. Inflation is up globally. Domestic policies anywhere are pretty much irrelevant.
Other than printing money in the early days of the pandemic to keep the economy(s) from tanking.
Which was on Trumps watch.
Which is also irrelevant.
Wait - I thought it was Ardern's fault?
Serious question though, why do you think the money supply was irrelevant?
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@nzzp sorry badly worded. I meant you can't blame Biden - or even Trump given every country reacted similarly.
Economics 101: Demand exceeds capacity = Inflation
We have pent up demand due to the pandemic and reduced capacity due to supply chain issues and unavailability of labour (also largely pandemic related). Throw in wage inflation, high commodity prices across the board, crippling shortages of key components, uncertainty caused by over heated property and share markets and now a regional war that threatens to escalate.
You also have a couple of generations that are used to price stability, including the decision makers that we trust to bring inflation under control. For a couple of decades we have used interest rates to peg back inflation but (again pandemic) there has been a reluctance to draw that arrow out of the quiver....
Still as long as nobody panics it wouldn't take a lot to see a correction. Unfortunately I see plenty of signs of panic.
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@kid-chocolate the Biden takes over line is irrelevant. Inflation is up globally. Domestic policies anywhere are pretty much irrelevant.
The very first thing Biden did when he took office was reverse Keystone. Day One. That moved a lot of chess pieces and had immediate American domestic and global repercussions. He made Greta smirk, but the financial and political fallout was predicted the day he did it.
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@nzzp sorry badly worded. I meant you can't blame Biden - or even Trump given every country reacted similarly.
Economics 101: Demand exceeds capacity = Inflation
We have pent up demand due to the pandemic and reduced capacity due to supply chain issues and unavailability of labour (also largely pandemic related). Throw in wage inflation, high commodity prices across the board, crippling shortages of key components, uncertainty caused by over heated property and share markets and now a regional war that threatens to escalate.
You also have a couple of generations that are used to price stability, including the decision makers that we trust to bring inflation under control. For a couple of decades we have used interest rates to peg back inflation but (again pandemic) there has been a reluctance to draw that arrow out of the quiver....
Still as long as nobody panics it wouldn't take a lot to see a correction. Unfortunately I see plenty of signs of panic.
Good summation. People often don't seem to realise that inflation as measured by (CPI, RPI etc) is not what is happening, it is what has happened. It is as much about where we were last year as where we are today. Interestingly from the figures out today US core CPI has fallen. Hopefully that's a leading indicator.
Edit: This popped up as part of a daily update from a fund management company:-
Wall Street temporarily rallied after the latest US CPI data. Though the print came in at 8.5% for March, the fastest rise in prices since 1981, core inflation rose by just 0.3%, notably lower than expectations and showing that inflationary pressure can be mostly attributed to volatile categories such as food, commodities and energy prices. This has caused investors to speculate that the Fed may require less interest rate rises this year to control inflation.
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@kid-chocolate said in Inflation:
@kid-chocolate the Biden takes over line is irrelevant. Inflation is up globally. Domestic policies anywhere are pretty much irrelevant.
The very first thing Biden did when he took office was reverse Keystone. Day One. That moved a lot of chess pieces and had immediate American domestic and global repercussions. He made Greta smirk, but the financial and political fallout was predicted the day he did it.
That argument might hold water if there was a shortage of oil. There isn't.
Inflation