A Picture is Worth a Thousand Barrels
---
Can you guess what the following graph represents?
Give up?
It's the price of sugar.
That's right -- sugar.
Why has the price of sugar skyrocketed like a dot-com stock?
Mainly because of the price of oil.
You see, when oil -- or anything else -- becomes too expensive, people begin looking for substitutes. Ethanol is a leading substitute for oil, and sugar is the primary component of ethanol. When the price of oil becomes high enough, it becomes increasingly cost-effective to use ethanol instead of fossil fuels, so refineries start buying sugar instead of oil.
Higher price of oil = higher demand for ethanol = higher demand for sugar = higher price for sugar.
or
Higher price of oil = higher demand for ethanol = lower quantity demanded of oil.
Stated differently, it's possible for oil to "price itself out of the market." In fact, it's not only possible, it's inevitable if the supply of oil is truly "fixed" (but that's a very big "if").
And this is just sugar-ethanol. Now add in corn-ethanol, natural gas, coal, nuclear and eco-friendly sources of energy, all of which become increasingly viable economically as the price of oil rises.
Now remind me again how "the world will someday run out of oil"?
Suggested Reading:
Give up?
It's the price of sugar.
That's right -- sugar.
Why has the price of sugar skyrocketed like a dot-com stock?
Mainly because of the price of oil.
You see, when oil -- or anything else -- becomes too expensive, people begin looking for substitutes. Ethanol is a leading substitute for oil, and sugar is the primary component of ethanol. When the price of oil becomes high enough, it becomes increasingly cost-effective to use ethanol instead of fossil fuels, so refineries start buying sugar instead of oil.
Higher price of oil = higher demand for ethanol = higher demand for sugar = higher price for sugar.
or
Higher price of oil = higher demand for ethanol = lower quantity demanded of oil.
Stated differently, it's possible for oil to "price itself out of the market." In fact, it's not only possible, it's inevitable if the supply of oil is truly "fixed" (but that's a very big "if").
And this is just sugar-ethanol. Now add in corn-ethanol, natural gas, coal, nuclear and eco-friendly sources of energy, all of which become increasingly viable economically as the price of oil rises.
Now remind me again how "the world will someday run out of oil"?
Suggested Reading:
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Posted by Kip on
15 March 2006
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