I've been wanting to study the demand/production vs. price curves in recent behavior of the oil markets. It's just too big a project for me to even think about. Today there is a great contribution in this area posted at The Oil Drum:
Predator-Prey Dynamics in Demand Destruction and Oil Prices
Posted by jeffvail on August 26, 2008 - 11:01am
One of the classic ecological modeling problems is the oscillating populations of predators and their prey in an ecosystem--as prey population rises, predator population follows suit until prey population begins to fall off, resulting in a subsequent drop in predator population (illustrated below). The same dynamic also applies, to some degree, to the relationship between oil price (prey) and marginal production/demand destruction/energy policy (predator). This post will explore that relationship and its ability to help us avoid poor energy policy choices.In our current tight supply situation, because of inability of world production to continue to grow without limit in support of economic growth, the price will try to scale a vertical wall. When demand pulls back a little in response, the price can fall back rather quickly. That is exactly the condition we have now. (Harry Shearer had a good item on the demand pull-back a couple of weeks ago, HERE.)
I'll try to examine this dynamic in more detail in subsequent posts. Meanwhile, no one should relax because we have a temporary climb-down of the gas price.
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