Monday, Aug 11, 2008
The slump in oil prices is a bad sign
MoneyWeek: The slump in oil prices is a bad sign
The recent fall in oil prices can't save us from recession, says John Stepek. The rising price was a symptom, not a cause, of the unchecked global boom and its fall is a sign that we're in a huge downturn.
Posted by damien @ 01:07 PM (824 views) Add Comment
13 Comments
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1. Eternal Sceptic said...
a classic case of demand destruction along with all that entails.
2. last_days_of_disco said...
"The problem facing the global economy right now is not a shortage of oil. It’s a shortage of money, following an unsustainable glut."
I wonder how the charade of inflation is going to be kept up while deflation is happening all around us.
3. jonb said...
It looks to me like a speculative bubble bursting. Oil prices are still very high though.
4. theboltonfury said...
exactly the point. We are now so accustomed to oil prices that even when they fall back a bit, but are still extortionate, we actually feel like we've had a good deal!
perfect state mind control
5. drewster said...
boltonfury -
"perfect state mind control"
Are you suggesting that the Americans, Saudis, Russians, and Chinese all managed to coordinate their production and consumption of oil in such a way as to perfectly manipulate the price? That would imply international coordination on an unprecedented scale!
Even if the American government had successfully manipulated the oil price, I can't imagine for a moment that the Chinese would take it lying down. Another conspiracy theory demolished...
6. Kruador said...
@jonb: that's because it is. I'm not sure whether it's caused by investment banks having to pull out in order to underwrite commercial banks' refinancing deals, or whether they've decided it's gone as far as it can after the US posted a real drop in car miles travelled (hence reduced actual global demand - the US consumed 20.8 million barrels of oil per day in 2005 (estimated), while the second biggest consumer (excluding the EU as a whole) is China, consuming 6.9 million (2007 estimate). The whole-EU figure is 14.5 million barrels/day. Figures from CIA World Factbook at https://www.cia.gov/library/publications/the-world-factbook/rankorder/2174rank.html.
My hope is that governments will not treat this mass withdrawal as an excuse not to regulate - 'look, the market worked!'. No, it didn't - the threat of regulation may be what caused the back-off. Fundamentally we don't want 'investors' speculating in commodities.
Regardless, the oil price is falling, and so a lot of things whose prices depend heavily on oil or oil derivatives are also dropping. I don't think it's a real deflation, only a return to where we were before oil prices ramped so severely. Is a house price crash deflation? If not, neither is an oil price crash.
Just to show how far things have to go to get back to where they were last year, see this graph at the InterContinental Exchange (the place where the speculators do their price manipulation): https://www.theice.com/marketdata/brentCrudeFuturesView/brentIndexView.jsp. For all of the 1990s the price was below $25 and mostly below $20. See http://inflationdata.com/Inflation/Inflation_Rate/Historical_Oil_Prices_Table.asp. In fact it looks a lot like the price ramping started in 1999 - about when the house price ramping started. Is this *also* due to excess credit?
7. Longtermview said...
"The rising price was a symptom, not a cause, of the unchecked global boom"
Er... how do you come to that conclusion?
Obviously the analytical skills of Monkey Week journos still falling to new depths...
8. jack c said...
I suspect the point theboltonfury is alluding to is that crude oil prices are down approximately 18% from the recent peak and the public are mighty grateful Morrissons have today knocked 2p per ltr off the price at the pump. They seem to be able to get the price at the pump up rapidly if crude prices rise but are very slow to go the other way.
9. theboltonfury said...
yes jack, that was my point. I'm sorry drewster, i thought it was obvious.
we are now happy(er) to pay 110p a litre when we were at full scale protests when it was 85p
10. jack c said...
Good to see you back on the threads bolton
11. drewster said...
Sorry boltonfury, I had misunderstood you and thought you were one of the conspiracy trolls on here. Please accept my apologies.
12. peter_2008 said...
Oil ended $114 ish today. And Gold ended $825 ish. Didn't someone say gold would stabililse around $915?
13. theboltonfury said...
no worries Drewster. Believe me, I'm as hacked off with some off that conspiratorial muck as it seems you are
i guess it's just a well used management technique of many establishments. If someone complains about something, make it worse just to make them feel relieved and grateful if the pain is turned down