Economic theory and empirical research yield hints helpful for understanding some of the vagaries of crude and product markets. Examples: 1) If spot prices are much lower than near futures prices, something must be preventing profitable arbitrage. Perhaps storage capacity is filled. 2) Reserves have many characteristics of inventories--they consume time and resources to find and prove. Rational economic agents accumulate inventories only to the extent that their benefits appear to exceed opportunity costs. Current reserves in areas where there is excess capacity, temporary government instability, or production or transportation disruptions may not adequately reflect future production potential. 3) Cartels are hard to administer effectively, especially where the resources, production costs, and goals of the cartel members differ widely. Continue to expect disagreement and "cheating" in OPEC. 4) Empirical estimates of long-run price elasticity of supply and demand are usually too small. Persistent price trends often cause surprisingly large changes in quantity supplied and demanded. Real prices of many minerals and mineral products have historically declined because of substitution and technological change. Be suspicious of forecasts of persistent considerable real price increases in crude and products. 5) Capital will flow to opportunities investors find attractive. Distrust forecasts based on impending "capital shortage." Similarly distrust those who say they need government subsidies, tax breaks, or tariff or import quotas to help them generate capital needed for modernization or expansion.

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