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Originally Posted by Dollarmansteve
The reason this rise is manageable is because it is not volatile. Like inflation, rising or dropping prices are manageable when they are predictable. That is, high inflation is ok if you know that its going to be high. Volatility and shocks are problematic. The market has basically priced in a fairly large shock already, which would lessen the effect if there were an actual shock.
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I don't know if I can agree with you in terms of volitility. Admittedly oil prices aren't bouncing around like a superball on speed, but on this day 1 year ago it was hovering around the $40/bbl mark. A 70% increase of any basic material over a year is going to cause pain and suffering, let alone the material that underpins the entire economic welfare of the country.
Also, if by "the market" you mean Nymex, I'd be inclined to agree... to a point. I think there's still plenty of upward to go. Depends on how cold this winter gets... if it's a serious chiller, I don't think the $100 barrel is entirely out of line this year, and I think it has more upward room beyond that still, even factoring in heavier crude grades brought online. Oil is still one of the cheapest liquids available commercially... even at $68/bbl that only works out to around $0.40/quart!
But if by "the market" you mean john and jane doe, then I've got my doubts. The entire country is built on a foundation of cheap, easily available petro energy, and as such it's a very inelastic market. You're going to need to see serious increases in price before seeing a serious decrease in consumption. The barriers to alternatives are too prohibitively expensive for many people.
Eventually, as prices continue to rise, it'll become too expensive to commute and people will either move, quit or switch to mass transit (if available... good luck with that all you peeps in the city of angels!) In the meantime, they WILL forego other things, including things we wouldn't consider luxuries. Low income / Fixed income families may well be choosing between fuel oil and food, or gas and medication.
