Yergin: Oil Prices Not Driven by Supply and Demand…

Michael Giberson

Reuter’s reports remarks of Daniel Yergin made in Singapore:

“Oil prices today do not reflect the world’s supply and demand fundamentals. Instead, prices are reflective of the weak dollar and expectations of a strong economic recovery,” Yergin told reporters on the sidelines of a conference.

Changing value of the dollar aside, isn’t all that Yergin is saying is “it isn’t supply and demand, it is expectations about supply and demand”?  And don’t the twin concepts of supply and demand already embed expectations, so isn’t all that Yergin is saying is “it isn’t supply and demand, but really, it is supply and demand”?

Maybe, slightly more charitably, Yergin might be taken as emphasizing that recent oil price movements have been driven by expectations of future supplies and demands rather than simply based on immediate production and consumption plans.

Or maybe what Yergin is saying is, “it isn’t supply and demand fundamentals, so don’t go hiring some cheapy, low-class energy economics consulting firm, instead you need a prize-winning energy consultant who can dress up ordinary supply and demand factors in words worthy of our world-class fees.”

4 thoughts on “Yergin: Oil Prices Not Driven by Supply and Demand…

  1. I agree with Yergin. I think the action in the oil, commodities, and precious metals markets is a money bubble. Pop the bubble, and it goes away.

  2. I’ve noticed that a lot of people in confuse Demand with Quantity Demanded, and then go on to make statements about supply and demand. I can’t be sure, but I think this is at the bottom of Yergins statement. If I had my way every trade publication would change the title of their monthly “demand” tables to monthly “consumption” tables. It wouldn’t solve the problem, but I think it’s a good first step.

  3. I’m with you Rolo. I wish people would talk about “Peak oil quantity supplied” and “Peak quantity demanded,” it would make moving the discussion to supply and demand relationships much more transparent.

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