Thursday, June 04, 2009
You have probably noticed it at the gas pump, but other than CNBC and The Wall Street Journal, has much noise been made that crude oil spot prices have about doubled since mid-February?
Is this indicative of increased worldwide economic activity, and the end of the recession in the U.S., or is it the beginning of a period of significant inflation that is about to afflict Western economies?
It is a response to the realities alluded to in the deficit prediction graphs. Excessive borrowing will result in inflation. Increased price of oil is a response to the predicted inflation.
Another factoid to which Obama and the Democrats are oblivious. Yes , it might be called a "stimulus," but precisely WHAT does it STIMULATE? I write this as a former Democrat.
Wasn't reported consumption down in the most recent report? Seems to me to be dollar weakness impacting price, generally speaking, plus some speculation that perhaps has gotten out a little ahead of reality.
It’s far too easy to be Ameri-centric when considering oil prices. Remember the price of oil depends on *world* economic activity, production, and consumption. I would go with the multi-point influence, from the previous dip being primarily caused by a bunch of over-active speculators (who now are collecting welfare and wondering where their house went), to a general world-wide economic recovery being in the process, and a bit of nervousness in the oil market due to Hugo Chavez and Iran. And some new speculation. To get a better idea we would have to see how prices of other major industrial commodities (Steel, Al, Cu) have performed over the same time period. Ignore gold, prices have been irrational there for over a year due to it being “pushed” to consumers.
My bet is the rest of the world will recover *far* sooner than the US.
I would have to agree with Link and anon 2:59 and I would guess there is a lot of speculation going on as well. Very frustrating that gas has jumped $1/gal since Dec with a huge fleet of tankers storing crude and US demand declining every month. The increasing price will obviously not help the economic recovery. My feeble minded guess is that if crude blows through $70, it is headed to $100.
> My bet is the rest of the world will recover *far* sooner than the US.
Let's define "rest of the world" and look at each one:
- Developing nations - cratering
- Europe - Cratering
- Asian Tigers - Cratering
- China - Maybe okay
- Japan - Cratering
In fact, every economic article has the U.S. doing better - but still anemic - compared to just about everyone else except China.
So try another conclusion.
Not that the data is readily available (to my knowledge anyway) it seems like part of the answer is to see how the price of oil is performing when denominated in other currencies (e.g. this example, last updated in early '08).
Beyond that, it's interesting that the IEA forecasts avg daily consumption to be down 2.6MM BBL/day this year, while according to the Economist, analysts believe OPEC output it down 3.3MM BBL/day this year. And if the US is any indication, global stockpiles have peaked and are starting to recede... In other words, with "cheap" oil being removed from the supply stack, it is perhaps not surprising that we find ourselves again on the steep, far-right part of the supply curve.