Tuesday, August 25, 2015

Oil prices staged a comeback on Tuesday...

...fears over the health of China’s economy and the global glut in supply...

Amid the global market crisis on Monday, the oil price benchmark hit a new 52-week low...

On the New York Mercantile Exchange, WTI was up 3.6% at $39.62 a barrel, below the psychologically important $40 level.

-Wall Street Journal.

I have a question, I have several questions. 

How did there come to be a "global glut" of oil? Fracking? 

Why does oil fluctuate like this? Global glut or not it's not like the world has come up with a substitute. The modern world literally cannot live without oil so the demand for oil is fairly "inelastic," like the demand for water. So "fairly inelastic" means somewhat elastic and sure prices will go up, prices will go down somewhat. But why a 57% drop? We're not drinking 57% less water.

Was it really a "global market crisis" yesterday? 

Why is $40/bbl "psychologically important?" Was $50? Will $20 be, the level Barron's predicted oil would hit before rebounding? What does "psychologically important" mean?

Why has there not been a 57% drop in the price of gasoline at the pump in the last year? How about a 47% drop? I'll take 37%.