Monday, Jul 16, 2007
High IRs are here to stay
Guardian: Sky-high oil prices signal higher rates
Rocketing global oil prices could force the Bank of England to keep interest rates higher for longer to stamp out fears of spiralling inflation, analysts have warned.
Posted by confused76 @ 09:26 AM (183 views) Add Comment
7 Comments
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1. Stoatgobbler said...
Food prices also showing large increases.
2. planning4acrash said...
These are the long term factors that will precipitate a crash eventually. BTL investors will not see that sustained high oil prices must mean 7-8% interest rates in the medium term, but high oil prices take a long time to feed through into price inflation and even longer to feed through into higher interest rates, given the bank's wait and see policy, so, fasten your seatbelts, get a good book to read, because it could be a slow boil.
3. planning4acrash said...
And by the way, OPEC does not aim for high prices. They benefit from price stability as much as anybody else. The truth of the matter is, that supplies and refinery capacity is peaking, light sweet crude has already peaked. They aren't opening the taps because the oil can't flow any faster. Eventually we will have to recognise that the oil economy is tanking and that oil and food inflation is not a choice, but an expression of supply fundamentals. http://www.oildrum.com
4. monty said...
p4c
I'd agree with most of your argument bar the bit about OPEC not siming for higher oil prices. If I was peering down at the bottom of my oil well, I may be inclined to eke out the greatest possible price for whatever was left. I believe that the Saudi's know that the jig is up, their production has peaked and it is now just a matter of time before the well runs dry.
The correct link is http://www.theoildrum.com
5. mrmickey said...
Oil is priced in US $ with the Dollar constantly falling is it any wonder the price of oil is going upwards. If I had a oilfield and was forced to accept a collapsing US$ in payment for my oil you can bet I'd start raising my prices.
6. planning4acrash said...
Monty, opec have consistently tried to keep oil at around $40-50. History does not agree with you that Opec want $80 inflation and high interest rates.
7. talking rot said...
planning4acrash nicely sums up the oil situation. Even if OPEC and non-OPEC countries wanted to pump more oil, they do not possess the refinery capability required to crack crude into usable products. Refinery is effectively a bottle neck. Petroleum companies haven't bothered with major investment in refinery capacity since the 1980s although there was some minor investment in the 1990s. Petroleum product prices in the 1990s didn't warrant the return on investment required for major investment.
I recall an article in "The Economist" in 2002 which argued interest rates of 8% to 9% would be needed to cause real pain in the housing market. Oil and food might help us reach that rate.