Here is someone's opinion on how oil prices effect shipping and how shipping effects oil prices. For those interested, I would attempt to verify the claims but it is something interesting to maybe factor into the equations of those who like predicting oil prices (which I don't think can be done very accurately over the near or long term):"When the Turn Comes for CL, it could be viciousMy rough estimate says that at any given time in recent years about 600 to 700 million barrels of crude oil are at sea, enroute from exporters to consuming countries.As a shipowner, about the only cost I have much control over is my fuel cost. Financing and insurance costs are a function of time--so much per month or year. Maintenance is also mostly a function of time, but it might be defered during economic downturns. Crew costs are also a function of time--so much per month, or per shift.Fuel burned is a function of speed--the drag goes up as a function of the speed--roughly at the square of the speed--double the speed equals more than double the fuel, but half of all the other costs. So at any time, there is an optimum speed--the higher the cost of fuel, the slower to steam to optimize profits. The lower the fuel cost, the faster you show go, up to the limit posed by higher drag on the ship's hull."cont'dhttp://www.investorvillage.com/smbd.asp?mb=2234&mn=16194...
Interesting insight into where the elasticity of oil comes from ... As fuel prices dropShippers and airlines burn more to increase speed andConsumers are more likely to start driving (during the summer with expensive gas, the Southern CA population in Vegas all but died out. The LA crowd is back now)I don't get his conclusion of how it points to a possibility of $150 oil though... I did put in some more $ to buy the dirt cheap oil stocks however- (PBT and one more ... maybe CGV - got to keep a good distribution of companies). My main selling point with oil/nat gas is that worldwide inflation will increase, slowing oil's drop as the economy approaches a bottom (no sight of it yet, but its down there somewhere) and putting in some spending supporting its use. When the economy turns (eventually) oil will go up dramatically reflecting not only increased demand, but increased inflation. I am still stubborn against the idea of investing in gold because I don't trust it... it seems too obvious a play for inflation/flight to safety and it goes against one of my more important rules - don't invest in anything that uses mainstream advertising to pull in investors. I still remember hearing the radio ads about the incredible 14% returns on bonds that were essentially risk-free because they were secured by real estate - and I still wonder how many people bought into that and lost money.
"Fuel burned is a function of speed--the drag goes up as a function of the speed--roughly at the square of the speed--double the speed equals more than double the fuel, but half of all the other costs. So at any time, there is an optimum speed--the higher the cost of fuel, the slower to steam to optimize profits. The lower the fuel cost, the faster you show go, up to the limit posed by higher drag on the ship's hull."Very interesting indeed!Might also explain how the high price of Crude drags down the speed of the World Economy.
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