The Price of Oil

The price of gasoline has now passed $4 a gallon or $135/barrel. Increased demand is a major reason for the price increases, but speculative investing in commodities has also played an even bigger role. Recent articles have suggested that nearly a billion dollars a day of "big money" has been invested in oil futures. A billion dollars a day of futures money is probably equivalent to 5-10 million barrels a day, since each barrel costs $100-$200. Or more precisely, 1 billion divided by $135 per barrel equals 7.41 million barrels/day. Current US consumption of oil for the month of march/2008 was 19.7 million barrels/day. So, basically, all the hedge funds, pension funds, and rich people have entered the oil futures market with speculative money equivalent to 1/3 of total US demand. To put this in perspective, this amount is greater than the total consumption of China, which is 6.5 millions barrels/day.

On the other hand, real demand for oil within the US is not increasing. From the data that spans oil consumption data from 1973, the greatest amount of oil consumption occurred in August of 2005, with 21.7 million barrels per day consumed. However, in February of 1979, 21.3 million barrels a day were consumed, which corresponds to a measly 1.7% increase, even though the US population has increased by 33% during that time frame (from 225 million to over 300 million). More strikingly, the demand for oil consumption has pretty much been flat over the last 3-4 years, even though price of oil has shot up 4 fold over this time. Finally, the current demand for oil over the 1st 3 months of 2008 has dropped precipitously to 2002 levels. Clearly, the data show that real demand for oil in the US has been contained for the last few years.

Of course, the slack in US demand could very well be made up global demand, but I'll leave that analysis for another post. However, keep in mind, that the US is responsible for nearly 25% of the world's oil consumption, so its hard to imagine that global demand is going counteract flat or decreasing US demand.

So what is the end result for the US consumer? Predicting the top of a speculative bubble is impossible to do. The bubble could go on for some time and if it does, prices could easily hit $200/barrel and $6/gallon. Or the bubble could end tomorrow. The real problem with a bubble is that an increase in price leads to an increase in demand (since every investor will flock to oil commodities), which can counteract or even overwhelm the decrease in demand from real oil consumption due to conservation. However, when the bubble does finally pop, expect a very harsh correction. A correction will be harsher and quicker than Nasdaq bubble or real estate bubble, since stock trades require a larger margin, and real estate is not as liquid. Once the commodities bubble pops, long term prices will remain constant for a long time as the speculative money will migrate to "infect" some other asset class.

My PC timeline

Keeping with the historical theme of the last post, I decided to list the computers that I have bought over the years in chronological order.

1990 - My parents buy me a MacIIci with a whopping 4 megs of ram.

1993 - I was off to college, which means a new Mac. I hastily purchase a Centris 650 before the first day of classes.

1997 - Upon completing college, I ended up at a software company that was PC centric. Thus, my first PC was a Dell Dimension XPS with a P2, 266 Mhz processor. In actuality, my first PC was an Orange PC card (486 66Mhz) that allowed my Centris 650 to "dual boot" as a PC.

2000 - It was the year 2000, and the possibilities were endless. Thus, I splurged on another Dell, a P3-966 Mhz machine.

2004 - Out of graduate school, but still feeling poor, I decided to build my own PC by taking advantage of several one time deals at Fry's Electronics. In the end, a P4, 2.4 Ghz machine was what I was able to put together for $400.

2007 - The disappointment of upgrading my 2004 box with Vista, results in me switching sides, and I splurge on a MacBook Pro, with a Core Duo Processor running at 2.16 Ghz. I was always a Mac guy, and I am glad to be back.

My Cell Phone Timeline

The 3g iPhone is going to be released real soon now, and I'll be upgrading my phone. My current phone is a Treo 650, which I have owned for nearly 3.5 years. Additionally, I've been a loyal Sprint customer since late 1997, and I'll be switching to evil empire, known as Pacific Bell (er I mean AT&T). So to give proper tribute to Sprint PCS, I am listing the chronology of phones that I have owned over the years.

• Samsung SCH-1000
  
• Neopoint 1000
• Sanyo SCP-5000
  
• Treo 300
• Treo 600
• Treo 650

So why leave Sprint? Well, in a nutshell, they have failed to innovate. Their new phones do not offer much over the treo 650. Additionally, the plans offered by Sprint have been fairly confusing as a myriad of options were offered. Their plans were simplified recently, but plan changes typically require a contract. The iPhone, with ample memory, a large screen, a real browser, and a new type of user interface (touch), really is the next generation of the smartphone, and therefore, my treo 650 will be retired shortly.

The Purpose of this Blog (none yet)

This blog will chronicle my adventures in TechLand (i.e. silicon valley). I've lived in the San Francisco Bay Area for almost 15 years, and have decided that its time to share my perspective on life here. Hopefully, this blog will help achieve several goals:

1) Document my life in some manner.
2) Resuscitate my deteriorating writing skills
3) Provide some perspective as to what its like to live in Silicon Valley

Wow, what lofty goals. The reality of the situation is that I just want to improve my online presence/reputation so that I can fit in with the rest of Silicon Valley. In fact, my online presence is so poor that I probably could never get another job in the tech industry, despite the fact that I have PhD from Stanford and have a good 10 years experience doing tech related stuff. In fact, a Google search of "Andy Singh" results in a bunch of results that have nothing to do with me. God forbid, most recruiters probably think I am amateur fighter, or a general manager in the Toronto, Canada area.

Well, I better get cracking, and get my web 2.0 rep in order, hopefully, before web 3.0 ...