Friday, Mar 23, 2007
Higher oil prices will impact such things as lending rates
BBC News: Oil prices leap on Gulf incident
"This sort of incident, and subsequent mishandling, is just the sort of thing that fuels concerns about a global conflagration over oil," said Fimat analyst John Kilduff.
We live in a highly connected world. There are those who think everything is nicely compartmentalised, but the world is more like a vast, highly complex differential equation with hundreds of partial derivatives which affect each other.
Oil Prices going up, may cause the failure of a large firm, or force a large hedge fund to unwind positions in other areas. These "unexpected" events can shock entire systems and thus lending costs. "Spreads" will widen (meaning that lenders have to charge more for loans above the rate they borrow at), leading to consequences such as a fall in house prices.
7 Comments
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1. David20040_0 said...
This is hardly unexpected, oil has jumped to $63. It was $78 when Israel was hitting Hezbollah and that made no difference. A $2 jump in oil price will not trigger a house price crash.
2. paul said...
"A $2 jump in oil price will not trigger a house price crash."
No-one is saying it will directly.
3. David20040_0 said...
A $2 increase anything, it is nothing. Unless it hits $75+ nothing is going to happen.
4. This comment has been removed as it was found to be in breach of our Blog Policies.
5. Whiteknight said...
made no difference?
It maybe didnt reach the visible tipping point for most people(what is visible to most people is a question - bailiffs knocking at the door?), but at $78 it was having an effect alright. At least to anyone who was paying an energy bill either directly or indirectly.
Like all things this takes a while to filter through.
Where do you think the price of fuel is going if things kick off in Iran? (>$120 a barrel for oil instantaneously the tactical nukes drop i would think).
Everything else in the market including credit instruments is equally badly priced and equally badly prepared for shocks.
6. David20040_0 said...
Maybe so but the current situation doesn't show the prelude for war it is just tit for tat arrests.
Obviously if a war kicks off oil will rocket but that will affect everything not just housing.
7. paul said...
David, the fact is that a jump in oil would affect everything, but at the biggest expense of the housing market. The housing market would go from being the sacred cow ... to the sacrificial cow.