Thursday, April 02, 2009
The oil price shock of 2007-2008: Fundamental, or speculative?
For those of you who are wondering whether the oil price shock of 2007-2008 and its subsequent rapid alleviation was primarily a function of fundamental supply and demand, on the one hand, or derivative speculation, on the other, here's the argument in favor of the former. Of course, the upshot is that oil prices will recover strongly when the global economy begins to grow again. If so, consider (1) buying oil stocks -- my favorite remains CVX, and (2) remembering how to conserve gasoline as you make your way through the world.
6 Comments:
By 
Chris, at
Thu Apr 02, 05:34:00 PM:
Or inflation could just ramp up in the next 2-3 years and we get another oil shock no matter how much oil is pumped.
By Dawnfire82, at
Thu Apr 02, 09:42:00 PM:
That argument seems to 1) equate rise in GDP with rise in demand for oil, which is misleading at best, and 2) states flatly that 'oil production stagnated' without taking into account that it stagnated because oil producing countries (namely Saudi Arabia) flatly stated that the price of oil was running away on speculation and if they ramped up production they'd be setting themselves up for failure when the bubble popped. And they were right.
By 
, at
Thu Apr 02, 11:40:00 PM:
You beg the question of domestic production which is still being limited by government policies. We hear so much about reducing our dependence on foreign oil, but it is the government which fosters that dependence. What would the price have been if American oil supplies were fully utilized?
By Escort81, at
Fri Apr 03, 12:07:00 AM:
Hamilton's paper that he presented at Brookings is linked, once you are at the link you provided. It is for econ geeks only -- something I once aspired to but never really became. The most compelling graph to me in the paper was a tripling of demand for oil in China since 1980. I think even in a rebound, when China's demand for oil picks up again, we just won't see that rate of increase in demand (relating to the slope of the demand curve at different points, if you will), which will have some dampening effect on the worldwide price increases. The early economic growth for a country is almost always the fastest and wildest.
Hamilton does say that speculation played a role, just not the primary role. His paper suggests some policy ideas, including dumping oil on the market from the Strategic Reserves to coincide with the maturation of futures contracts.
I like the CVX pick. But we should have a bet: which comes first, S&P 500 @ 1,600 or $150/bbl. spot oil? I'll take the S&P side. Loser buys @ T. Sweets (with blend-ins).
By Purple Avenger, at
Fri Apr 03, 02:13:00 AM:
My 11 year old diesel Jetta (std 5-speed) gets around 55mpg@55mph.
The only gas hog I've ever owned was a 72 Chrysler New Yorker, and I only bought that cuz I bid $50 for it at a police impound auction and had less than 40K on it.
By , at
Fri Apr 03, 08:16:00 AM:
another possibility is that an over-valued euro was inflating the value of oil. is it a coincidence that the day the euro started to slide oil followed suit?
