Oil Smashes Through The $73 Barrier

[Realistbear]

http://today.reuters.co.uk/news/newsarticl...OIL.xml&src=rss

LONDON (Reuters) - Oil hit a new high above $73 a barrel on Wednesday on fears Iran's intensifying dispute with the West may hit oil supplies and after a sharp fall in U.S. gasoline stocks.

The price of oil has trebled since the start of 2002 and is nearing the inflation-adjusted peaks above $80 a barrel reached in the early 1980s, just after the Iranian Revolution.

The high prices have sounded alarm bells in consuming nations fearful of an economic hit.

The International Monetary Fund said on Wednesday the impact of higher oil prices on the global economy was a growing concern. The IMF said in its semiannual World Economic Outlook that it was

worried the full effects of the surge in energy prices had yet to be felt

.

Economic historians will remember what happened to inflation and consequential IR in the 1980s.

Our economy may be floundering due to job losses but it may still be TTRTRates due to inflationary pressure caused by oil prices.

Edited April 19, 2006 by Realistbear

[munimula]

The high prices have sounded alarm bells in consuming nations fearful of an economic hit.

Our economy may be floundering due to job losses but it may still be TTRTRates due to inflationary pressure caused by oil prices.

What I'd like to know is how, in a global economy where everything requires oil how inflation has been kept so low.

Factory input price inflation is high as you would expect but the prices just aren't be passed onto the consumer.

I understand that this probably represents inflation building up in the system that eventually will have to come out but when is it going to come out?

In the short term we see some effects from higher prices at the pumps but the other inflationnary effects, cost of manufacture, transport, energy just isn't being passed onto the consumer.

Why not? How are companies absorbing these costs?

The high prices have sounded alarm bells in consuming nations fearful of an economic hit.

The US driving season is fast approaching. That could be interesting. $100 a barrel is not impossible now. Could they keep those prices out of inflation?

[jp1]

How are companies absorbing these costs?

Cutting fat till they cant absorb any more. Then job losses

[MarkG]

What I'd like to know is how, in a global economy where everything requires oil how inflation has been kept so low.

Amongst other things, by shipping jobs to China.

Of course once all the jobs are in China (or other cheap Asian nations), or the Chinese start demanding more money, you're screwed... that's a one-off cost-cutting measure.

Also, they've reduced quality and/or quantity, and it would appear that some companies are going to run their suppliers into bankruptcy by refusing to pay more for products even though the suppliers' costs are increasing. Again, once the suppliers are bankrupt prices will be going up.

I won't be at all surprised to see 10-20% interest rates again before this is all over.

[Guest]

10% or 20% is fine, it's just 15% that's the problem, Mark, ask anyone on the street.

[737]

What I'd like to know is how, in a global economy where everything requires oil how inflation has been kept so low.

Factory input price inflation is high as you would expect but the prices just aren't be passed onto the consumer.

I understand that this probably represents inflation building up in the system that eventually will have to come out but when is it going to come out?

In the short term we see some effects from higher prices at the pumps but the other inflationnary effects, cost of manufacture, transport, energy just isn't being passed onto the consumer.

Why not? How are companies absorbing these costs?

The US driving season is fast approaching. That could be interesting. $100 a barrel is not impossible now. Could they keep those prices out of inflation?

"Why not? How are companies absorbing these costs?"

Well, in the food market many producers such as Northern foods are having to absorb extra input costs such as energy as the big supermarkets are refusing to pay higher prices!

The cost is being born by shareholders, pension funds (and probably employees) of companies like Northern - excellent from the governments point of view as the energy companies get their whack whilst the consumer still pays the old price!

Northerns share price has fallen from circa 150p to 83p at one time today and their annual dividend of 9p a share is likely to be reduced to 4.5p

[munimula]

"Why not? How are companies absorbing these costs?"

Well, in the food market many producers such as Northern foods are having to absorb extra input costs such as energy as the big supermarkets are refusing to pay higher prices!

The cost is being born by shareholders, pension funds (and probably employees) of companies like Northern - excellent from the governments point of view as the energy companies get their whack whilst the consumer still pays the old price!

Northerns share price has fallen from circa 150p to 83p at one time today and their annual dividend of 9p a share is likely to be reduced to 4.5p

This can't go on forever and would point to inflationnary pressure becoming greater all the time and eventually coming out.

[MarkG]

Well, in the food market many producers such as Northern foods are having to absorb extra input costs such as energy as the big supermarkets are refusing to pay higher prices!

Yeah, that's the kind of thing I was thinking of: there's only so long the suppliers can continue to absorb the costs in their bottom line before they say 'to hell with that' or just go bust.

And then hidden inflation explodes onto the scene and interest rates have to go to 20% to return any faith in fiat currency.

Edited April 19, 2006 by MarkG

[homeless]

oil is only one part of the problem

everything is hitting peaks, and its obviously gonna cause huge inflation, no matter what people on here try to spin.And huge inflation means bigger intrest rates.

examples

gold and silver at 28 year highs

copper is at a all time high

lead is at a all time hight

most other metals at all time highs

energy is at all time highs

gas

you name it, and these are items even china cant absorb in there factory gate prices, so goods from manufacturing countries will 100% be on the rise.

commodities is where its gonna be at for the next few years.

copper is £3643 per metric tonne now in london market

think about that

Edited April 19, 2006 by homeless

[MarkG]

everything is hitting peaks, and its obviously gonna cause huge inflation

It's not going to cause inflation, it _is_ inflation.

commodities is where its gonna be at for the next few years.

That depends on whether central banks are willing to push rates high enough to soak up all that easy credit they've been pumping out for years. Once rates rise enough to push us into a global recession, the fake demand will dry up fast.

[karhu]

This can't go on forever and would point to inflationnary pressure becoming greater all the time and eventually coming out.

M - thank goodnes you are starting to come around and (a) believe that inflation is now in the system - it's only a matter of time before we see it in CPI and (b ) stop believing this rubbish that was written in various newspapers (naming no names - The Times) about a damn rate cut when we know very well where interest rates are going.

Currently, the markets are predicting two 25BP rises and nothing coming out of the financial markets is doing anything to change this view.

Edited April 19, 2006 by karhu

[tao]

talking of China this nearly slipped past the net

http://uk.biz.yahoo.com/19042006/323/china...ge-hike-ft.html

Tao

[Realistbear]

IR are still headed up in the US despite today's panic:

http://today.reuters.com/investing/finance...DS-UPDATE-2.XML

U.S. Treasuries fall as consumer inflation grows

Wed Apr 19, 2006 11:02 AM ET

Printer Friendly | Email Article | Reprints | RSS (Page 1 of 2)

(Updates with consumer price data)

By Richard Leong

NEW YORK, April 19 (Reuters) - U.S. Treasury debt prices fell on Wednesday, erasing earlier gains, after a report showing

higher-than-expected U.S. consumer inflation boosted the likelihood the Federal Reserve may raise interest rates beyond May

.

The core rate of the consumer price index rose 0.3 percent in March, above the median forecast of a 0.2 percent increase and a 0.1 percent rise in February. The March reading was the biggest monthly increase of core CPI in a year. For more details, see [iD:nN19399779]

The CPI core rate is seen as a better inflation gauge than the broader CPI index because it strips out volatile food and energy costs. The headline CPI rose 0.4 percent in March, in line with forecasts.

"In order for the Fed to pause you would have to see core inflation stay low, and this (core CPI reading) is a little bit troubling and is causing some selling in our market," said Rick Klingman, head U.S. government trader at ABN Amro in New York.

[737]

Yeah, that's the kind of thing I was thinking of: there's only so long the suppliers can continue to absorb the costs in their bottom line before they say 'to hell with that' or just go bust.

And then hidden inflation explodes onto the scene and interest rates have to go to 20% to return any faith in fiat currency.

They could keep prices down by reducing quality - no inflation but an inferior product

[Bear Goggles]

But commodities are just in a bubble (but houses aren't) so the the banks won't raise interest rates.

Honestly, It's true - Anatole Kaletsky told us in his column in The Times last week.

[ronnie]

the article in times today made it clear,china is holding inflation down globally but inflation is rampant within china and if the currnecy which is artifically set is a llowed to freely float it will soar inflation prices charged to the rest of the world and exporting inflation here etc

[slapkirsty]

it's a bit like a laurel and hardy sketch.

a pipe is leaking in 5 places.

stan puts his hands on the 2 smallest leaks to help out. He smiles a lot.

Thus, the pressure on the other 3 leaks intensify massively straight into the face of Hardy, Blair and Bush.

They give up and go over to help Stan in keeping the other 2 holes down.

[BillyShears]

What I'd like to know is how, in a global economy where everything requires oil how inflation has been kept so low.

Factory input price inflation is high as you would expect but the prices just aren't be passed onto the consumer.

I understand that this probably represents inflation building up in the system that eventually will have to come out but when is it going to come out?

In the short term we see some effects from higher prices at the pumps but the other inflationnary effects, cost of manufacture, transport, energy just isn't being passed onto the consumer.

Why not? How are companies absorbing these costs?

The US driving season is fast approaching. That could be interesting. $100 a barrel is not impossible now. Could they keep those prices out of inflation?

Cost reductions in other areas? For example, we've heard of call centres being off-shored, cutting costs dramatically. We've heard that money paid to people working on building sites has reduced. I've heard of such things as shops not replacing managers, but simply assigning management tasks to lower paid workers.

Put enough of this together, and it could explain some of the lack of inflation.

Though I can't see it lasting. Were oil prices historically low in 2002? Not really:

http://inflationdata.com/Inflation/images/...rices_Chart.htm

Though they had dropped from a higher level from about 1999, and maybe there was some inflation at that point which didn't disappear when prices dropped leading up to 2002.

Other savings? Greater automation? More efficient use of fuel?

Edit: The pound was about $1.4x in 2002, now it's $1.7x. So the cost of fuel in the UK has changed as much as it has in US$.

Edit2: The price appears to have been $10 a barrel in about 1999, so it's gone up over 7 times since then. That to me is even more shocking that having risen 3x since 2002.

Edit3: Manufacturing also moved to China for a lot of products. Again, lowered costs.

Billy Shears

Edited April 19, 2006 by BillyShears

[Realistbear]

$74

http://today.reuters.co.uk/news/newsarticl...L-1.xml&src=rss

Oil hits new high above $74

Thu Apr 20, 2006 10:03 AM BST

By Luke Pachymuthu

SINGAPORE (Reuters) - Brent crude oil jumped to a fresh record high above $74 a barrel on Thursday after a steep drop in U.S. gasoline stocks fuelled fears of tight summer supplies at a time of growing anxiety over Iran's exports.

IPE Brent crude <LCOc1> climbed as high as $74.22 a barrel, its eighth consecutive session to mark a new peak. It was trading up 20 cents at $73.95 a barrel by 0822 GMT.

U.S. May crude <CLc1> oil futures rose 32 cents to $72.49 a barrel, its third day running to make a new all-time high.

http://news.bbc.co.uk/1/hi/business/4925240.stm

Last Updated: Thursday, 20 April 2006, 09:53 GMT 10:53 UK

Oil scales fresh peak in London

Analysts are trying to work out when the recent price surge will peak

Crude oil traded in London has hit a record high of $74.16 a barrel, the seventh consecutive day in which it has set a new price peak.

Concerns that increased demand for petrol will squeeze already stretched supplies have kept prices high, as data showed a fall in US gasoline stocks.

Edited April 20, 2006 by Realistbear

[Converted Lurker]

$74

http://today.reuters.co.uk/news/newsarticl...L-1.xml&src=rss

Oil hits new high above $74

Thu Apr 20, 2006 10:03 AM BST

By Luke Pachymuthu

SINGAPORE (Reuters) - Brent crude oil jumped to a fresh record high above $74 a barrel on Thursday after a steep drop in U.S. gasoline stocks fuelled fears of tight summer supplies at a time of growing anxiety over Iran's exports.

IPE Brent crude <LCOc1> climbed as high as $74.22 a barrel, its eighth consecutive session to mark a new peak. It was trading up 20 cents at $73.95 a barrel by 0822 GMT.

U.S. May crude <CLc1> oil futures rose 32 cents to $72.49 a barrel, its third day running to make a new all-time high.

http://news.bbc.co.uk/1/hi/business/4925240.stm

Last Updated: Thursday, 20 April 2006, 09:53 GMT 10:53 UK

Oil scales fresh peak in London

Analysts are trying to work out when the recent price surge will peak

Crude oil traded in London has hit a record high of $74.16 a barrel, the seventh consecutive day in which it has set a new price peak.

Concerns that increased demand for petrol will squeeze already stretched supplies have kept prices high, as data showed a fall in US gasoline stocks.

This is such a huge issue, should merit at least 30 seconds on the mainstream news channels "So what does it mean for the average motorist then?"..cue smiley presenter and picture of car re-fuelling....

[OzzMosiz]

And we're not even in Hurricane season yet!

Edited April 20, 2006 by OzzMosiz

[Realistbear]

Yes--that is true. My sister is looking to buy a property in North Carolina and the EAs are recommending people buy in the West of the State as the East is hurricane alley and the storms this year are predicted to be bigger than last year. Florida investment properties must be in trouble.

NC is quite a cheap place to live--a 4 beroom luxury house overlooking a golf course goes for around $250k. A more mundane family house on a middle scale estate runs around $150k. Might be tempted to move back to the States one day to retire!

Edited April 20, 2006 by Realistbear

[shermanator]

Yes--that is true. My sister is looking to buy a property in North Carolina and the EAs are recommending people buy in the West of the State as the East is hurricane alley and the storms this year are predicted to be bigger than last year. Florida investment properties must be in trouble.

In my contrary opinion oil is yet another commodity bubble. When the American consumer stops spending and plunges the world into recession, oil will plummet to around $10. People go on and on about China - it's irrelevent. China is nothing but a giant sweatshop producing tat for the yanks and British, so when we go into recession the third world will have no use for oil.

Asset deflation will inevitably follow a short inflationary period, not unlike the early 80s.

[Realistbear]

In my contrary opinion oil is yet another commodity bubble. When the American consumer stops spending and plunges the world into recession, oil will plummet to around $10. People go on and on about China - it's irrelevent. China is nothing but a giant sweatshop producing tat for the yanks and British, so when we go into recession the third world will have no use for oil.

Asset deflation will inevitably follow a short inflationary period, not unlike the early 80s.

I also have very little confidence in the stability of China. I also think you are dead right about consumption and how the drop will work its way through to China rapidly throwing that country into recession. The business wires from China today are already showing that HPI is falling in some regions with YoY only at around 5%--slow for a booming economy? The Chinese boom has been too sudden and most is based on discretionary goods. Overproduction is already apparent as we see prices fall for many Chinese goods which we and the yanks are starting to buy less of.

The trigger will, IMO, come from Japan with rising IR bringing borrowing and consequential discretionary spending to an abrupt hault. That will be followed by recession and a HPC.

[SarahBell]

If oil could be produced cheaply and easily would this solve the worlds problems? Or would global warming just get in the way?