Sunday, November 30, 2014

STATING THE BLEEDING OBVIOUS

Zacks Equity Research (‘Our research. Your success”) posts (28 November), “OPEC Says No to Production Cut: Crude Dips Below $70” HERE 
The decision against production cut by the OPEC members has added to the market woes related to the oversupply of crude. Moreover, with weak global demand we do not foresee any immediate rise in oil price.
But we are sure that the market will not allow the commodity price to remain low for ever as it is the invisible hand that will determine the right price of the commodity in the long run.”
Comment
A cartel controlling its members’ outputs crude oil, amounting to 40 per cent of world sales, sets their outputs for the immediate future and reqiires them to maintain their common unit oil prices in a falling market’s demand. 
Competing shale gas industry’s products require high prices to justify both expensive exploration and supply and non-cartel members require to maintain their volumes.
Believers in the “invisible-hand” religion assert that the mysterious “hand” “will determine the right price of the commodity in the long run”.
How long is the “long run”? Presumably for as long as it takes for the crude price to remain, depending on how long it takes the crude cartel to fall apart, and/or for expensive shale gas to reduce its costs.
The proviso at the root of this analysis is “the market will not allow the commodity price to remain low for ever”. 
Amazing insight! What erudition! What ‘research’ capability resides in Zacks! What nonsense is spoken about the “invisible hand”! How does it work its magic? 

Markets work by visible prices and cannot work without them.

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