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Sky-high Oil Prices Signal Higher Rates


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Recent events in Nigeria have really spooked people (15% of worlds oil) and this has added to the problem of high prices recently.

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http://observer.guardian.co.uk/business/st...2126419,00.html

Sky-high oil prices signal higher rates

Bank could step in to tackle fresh inflation fears

Heather Stewart, economics editor

Sunday July 15, 2007

The Observer

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.

After supply cuts from producers' cartel Opec, and predictions that global energy demand will remain strong, the cost of a barrel of Brent Crude rose by well over $1 on Friday, to close at $73.93, near the all-time highs of last summer.

With commodities experts predicting the market will remain tight for the rest of the year, Karen Ward, chief UK economist at HSBC, said oil price rises could add up to 0.5 per cent to the inflation rate over the coming months: and that would mean yet more rate increases.

Article continues

'Unless it's very clear that consumers are reacting to higher rates and higher prices, then the Bank of England are going to take a hard line, and there will be more rate hikes on the back of it,' she warned.

In the long term, sky-high oil costs tend to depress household spending, slamming the brakes on economic growth; but first, they push up inflation. With the Bank keen to signal that it will keep a lid on rising prices, after inflation shot up to 3.1 per cent earlier this year, David Brown, chief European economist at Bear Stearns, agreed that hawkish rate-setters could now keep borrowing costs higher, for longer.

'It's a reinforcement tool for central banks to keep the tightening bias intact,' he said. The Bank's nine-member monetary policy committee has increased rates five times since last August, and made clear it wants to keep a grip on consumers' perceptions of the rising cost of living. 'In the UK, it's the threat of inflation imagined, as much as inflation in reality,' said Brown. 'They will keep on waving this big stick about.'

A prolonged period of higher rates would raise the risk of a hard landing in the booming housing market. Economists at the Bank of America this weekend added their voices to predictions of a slowdown, saying homes were 20 per cent overvalued, and there was a one-in-five chance of a crash next year or in 2009.

There is already evidence that higher borrowing costs are causing pain for UK Plc. Analysis by accountants Ernst and Young shows UK firms issued 191 profit warnings in the first half of the year - 13 per cent higher than the same period a year ago. The impact of higher oil prices on inflation could be compounded by the rising costs of other commodities. World food prices, in particular, have shot up as farm land is gobbled up to grow subsidised biofuels, and droughts in Australia exacerbate shortages.

The summer energy price spike is also likely to frustrate the hopes of US investors for a confidence-boosting rate cut from the Federal Reserve over the next few months. Kona Haque, senior commodities editor at the Economist Intelligence Unit, predicts that the cost of oil will remain around $70 a barrel for the rest of the year, and throughout 2008, as Opec producers aim for high prices.

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HA, HA, HA!!!!

They can't cut rates this time!!!

GB must realise now that his House Price Boom is dead in the water - no further repeat of 2005...................

.....................Conversation between Gordon Brown and Eddie George (Aug 2005)

Gordon Brown: Hey, Eddie it's the boss here. My Housing Boom has been coming off the tracks for a few months now. Be a good boy would yer and cut interests rates.

Eddie George: Er, Gordon, I don't think this would be a good idea we already have a massive housing bubble and a record amount of personal debt - I think it would be better to lance the boil now.

GB: If you don't do it I'll replace you - do it and I'll give you a peerage!

EG: Ok boss.

This is what will happen this time...........

Conversation between Alistair Darling and Mervyn King (Aug 2007)

Alistair Darling: Hey Merv, the boss has demanded that you cut rates as his house boom has slowed down to unnaceptable levels.

Mervyn King: Er, tell him that its not a good idea Darling. You see we have record food price inflation at the moment and oil prices are historically high and set to continue to rise. Money supply growth is also out of control and the inflationary forecast is high for the forseeable future. If you cut rates now the city would lose confidence and the pound would plummet creating more inflation!

AD: Damn! (Telephones Gordon) "Boss, MK thinks you had better call an election before the sh#t hits the fan" etc...........

THe housing market is dead and the politicians no it! :P

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Inflation + interests rates + political instability + demand = pain.

If your a damn muggle and you have spent more than you have.

otherwise:

Inflation + interests rates + political instability + demand = fun, extra income and HPC pay per view.
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I loved this bit the best........

With commodities experts predicting the market will remain tight for the rest of the year, Karen Ward, chief UK economist at HSBC, said oil price rises could add up to 0.5 per cent to the inflation rate over the coming months: and that would mean yet more rate increases.

Is this 0.5 per cent over what the markets have already indicated? If it is then Darling and Brown must be sh#tting themselves! :lol:

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AD: Damn! (Telephones Gordon) "Boss, MK thinks you had better call an election before the sh#t hits the fan" etc...........

The optimal strategy is surely to lose an election before the sh#t hits the fan...

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The optimal strategy is surely to lose an election before the sh#t hits the fan...

You're thinking like a normal person. Brown has been lusting after leading the country for his entire life. 2 years is not enough for him to secure his reforms as his enduring legacy - their egos demand they stay longer than they should - happened to Thatcher & Blair, will happen to Brown; If the current trend in opinion polls away from Dappy Dave hold for another few months, I wouldn't be at all surprised to see a general election before the end of the year. Once Gordo has secured another 5 years, he would attempt to blame the crash on oil prices / international speculators / [insert scapegoat here].

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Guest Bart of Darkness
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.

Oh dear, oh deary me, oh my, oh crumbs!

Looks like those poisons in the mud © RB 2006 are well and truly having an effect.

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Oh dear, oh deary me, oh my, oh crumbs!

Looks like those poisons in the mud © RB 2006 are well and truly having an effect.

I think oil will run out at some point but no for another 50 years possible, what we are now seeing in the oil markets is pure and simple greed, investors salivating at the mouth with every pi$$y little kidnap story in Nigeria or farty storm off the gulf of Mexico, its all bo**ocks, if this sh** continues then it wouldn't surprise me if the money men don't talk it up to $300 barrel, the green lobby are so powerful now, on one wants to talk it down as they will only be happy when we all return to wigwags with bicycles made of wicker.

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I think oil will run out at some point but no for another 50 years possible, what we are now seeing in the oil markets is pure and simple greed, investors salivating at the mouth with every pi$$y little kidnap story in Nigeria or farty storm off the gulf of Mexico, its all bo**ocks, if this sh** continues then it wouldn't surprise me if the money men don't talk it up to $300 barrel, the green lobby are so powerful now, on one wants to talk it down as they will only be happy when we all return to wigwags with bicycles made of wicker.

Yeah the declines in the north sea and mexico coupled with the huge growth in drill rigs just to maintain production at gulwar are just noise.

Production is circa 85 million bpd and demand is basically 85 million bpd. Just because USA uses about 20x the amount of oil as china per person does'nt suggest that demand will increase. China isn't likely to use any more cars or flights or plastics or feterlizers. Loads of slack ;), no problem, nothing to see here..... there's some sand i'll go stick my head in it and everything will be fine.

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I think oil will run out at some point but no for another 50 years possible, what we are now seeing in the oil markets is pure and simple greed, investors salivating at the mouth with every pi$$y little kidnap story in Nigeria or farty storm off the gulf of Mexico, its all bo**ocks, if this sh** continues then it wouldn't surprise me if the money men don't talk it up to $300 barrel, the green lobby are so powerful now, on one wants to talk it down as they will only be happy when we all return to wigwags with bicycles made of wicker.

Oil won't 'run out' in 50 years (or 500 years); what the world is running out of, and fast, is cheap oil upon which industrial society totally depends. Oil will still be available hundreds of years from now, it's just that 1) flowrates will steadily fall below that which industrial society might desire and 2) the price will eventually rise so that few can afford it.

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I think oil will run out at some point but no for another 50 years possible, what we are now seeing in the oil markets is pure and simple greed, investors salivating at the mouth with every pi$$y little kidnap story in Nigeria or farty storm off the gulf of Mexico, its all bo**ocks, if this sh** continues then it wouldn't surprise me if the money men don't talk it up to $300 barrel, the green lobby are so powerful now, on one wants to talk it down as they will only be happy when we all return to wigwags with bicycles made of wicker.

The central bank cheap money effluent has to go somewhere, to hope that it won't go to commdities and stoke up inflation is a stupid hope and pray attitude.

It is not just about oil, pull up a graph of nealry any raw material and see what your bankers have done for you.

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The central bank cheap money effluent has to go somewhere, to hope that it won't go to commdities and stoke up inflation is a stupid hope and pray attitude.

It is not just about oil, pull up a graph of nealry any raw material and see what your bankers have done for you.

http://www.telegraph.co.uk/money/main.jhtm...15/ccash115.xml

Mobilising their dollars and who can blame them!

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I think oil will run out at some point but no for another 50 years possible, what we are now seeing in the oil markets is pure and simple greed, investors salivating at the mouth with every pi$$y little kidnap story in Nigeria or farty storm off the gulf of Mexico, its all bo**ocks, if this sh** continues then it wouldn't surprise me if the money men don't talk it up to $300 barrel, the green lobby are so powerful now, on one wants to talk it down as they will only be happy when we all return to wigwags with bicycles made of wicker.

Nobody is concerned about oil "running out". The concern is that the supply of oil will not be able to keep apace with the demand.

Modern economics and the whole fiscal pricing system is built on the principals of supply and demand. If demand for an item grows the price grows and in doing so encourages an increase in supply. If demand falls the price falls and discourages oversupply.

The problem lies in the fact the system assumes it is possible to produce an infinite volume of any commodity in order to cater for an ever expanding demand. Fossil fuels are of course irreplenishable consumables (unlike food, metals, cloth, timber, etc...). Therefore they will be the first of the great commodities required in our vast and expanding global economy to irreversibly fall short of demand.

The concern is that when this shortfall begins to grow it will result in very rapid price inflation. And since oil is the first to "peak" the concern is that the rapid inflation in the oil price will quickly inflate the price of all freight. Such widespread inflation would lead to a very difficult and challenging business environment and many ventures would simply be uneconomic or unviable.

This of course leads to greater risk to current ventures, ventures erected in the absence of such a hash business climate. Many ventures will simply fail in the face of freight cost inflation, and the accompanying rising default rate will lead to spiraling interest rates, and a general and irreversible contraction of the global economy and the size of the population that economy is capable of supporting.

.

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Nobody is concerned about oil "running out". The concern is that the supply of oil will not be able to keep apace with the demand.

Modern economics and the whole fiscal pricing system is built on the principals of supply and demand. If demand for an item grows the price grows and in doing so encourages an increase in supply. If demand falls the price falls and discourages oversupply.

The problem lies in the fact the system assumes it is possible to produce an infinite volume of any commodity in order to cater for an ever expanding demand. Fossil fuels are of course irreplenishable consumables (unlike food, metals, cloth, timber, etc...). Therefore they will be the first of the great commodities required in our vast and expanding global economy to irreversibly fall short of demand.

The concern is that when this shortfall begins to grow it will result in very rapid price inflation. And since oil is the first to "peak" the concern is that the rapid inflation in the oil price will quickly inflate the price of all freight. Such widespread inflation would lead to a very difficult and challenging business environment and many ventures would simply be uneconomic or unviable.

This of course leads to greater risk to current ventures, ventures erected in the absence of such a hash business climate. Many ventures will simply fail in the face of freight cost inflation, and the accompanying rising default rate will lead to spiraling interest rates, and a general and irreversible contraction of the global economy and the size of the population that economy is capable of supporting.

.

Thats all very well and good but a barrel of the stuff in 2000 was about $15 fast forward 7 years its nearly $80, nothing much has changed, its not like every china man has swapped his push iron for a Hummer or the empty light has come on in the well, its more to do oil suppliers on a desert island with naked chicks right was we speak blowing coke out of their ar$es.

Edited by Jimmy2Times
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Guest nosugarbaby
Nobody is concerned about oil "running out". The concern is that the supply of oil will not be able to keep apace with the demand.

Modern economics and the whole fiscal pricing system is built on the principals of supply and demand. If demand for an item grows the price grows and in doing so encourages an increase in supply. If demand falls the price falls and discourages oversupply.

The problem lies in the fact the system assumes it is possible to produce an infinite volume of any commodity in order to cater for an ever expanding demand. Fossil fuels are of course irreplenishable consumables (unlike food, metals, cloth, timber, etc...). Therefore they will be the first of the great commodities required in our vast and expanding global economy to irreversibly fall short of demand.

The concern is that when this shortfall begins to grow it will result in very rapid price inflation. And since oil is the first to "peak" the concern is that the rapid inflation in the oil price will quickly inflate the price of all freight. Such widespread inflation would lead to a very difficult and challenging business environment and many ventures would simply be uneconomic or unviable.

This of course leads to greater risk to current ventures, ventures erected in the absence of such a hash business climate. Many ventures will simply fail in the face of freight cost inflation, and the accompanying rising default rate will lead to spiraling interest rates, and a general and irreversible contraction of the global economy and the size of the population that economy is capable of supporting.

.

One of the neatest summaries I've seen on this situation and kinda of scary with it too! The force of global production has been in place for some time, yet the price of oil managed to go down for a while from last year. Yes, it's back up, but I find that a strange contradiction. Surely with global ouput being what it is, the price of oil should simply be on an upward trend. In fact, thinking about itk, it's dirt cheap. Why? I can't get to a logical conclusion that isn't a doomsday scenario, it's like global business is in complete denial or is it simply to enjoy it while it lasts? for example the conmtinued manufacturer of cars, planes, ad nauseaum.

I can't say whyu, but I think you've also outlined why the price of gold will rise (a questionI raised on another thread).

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Guest nosugarbaby
Nobody is concerned about oil "running out". The concern is that the supply of oil will not be able to keep apace with the demand.

Modern economics and the whole fiscal pricing system is built on the principals of supply and demand. If demand for an item grows the price grows and in doing so encourages an increase in supply. If demand falls the price falls and discourages oversupply.

The problem lies in the fact the system assumes it is possible to produce an infinite volume of any commodity in order to cater for an ever expanding demand. Fossil fuels are of course irreplenishable consumables (unlike food, metals, cloth, timber, etc...). Therefore they will be the first of the great commodities required in our vast and expanding global economy to irreversibly fall short of demand.

The concern is that when this shortfall begins to grow it will result in very rapid price inflation. And since oil is the first to "peak" the concern is that the rapid inflation in the oil price will quickly inflate the price of all freight. Such widespread inflation would lead to a very difficult and challenging business environment and many ventures would simply be uneconomic or unviable.

This of course leads to greater risk to current ventures, ventures erected in the absence of such a hash business climate. Many ventures will simply fail in the face of freight cost inflation, and the accompanying rising default rate will lead to spiraling interest rates, and a general and irreversible contraction of the global economy and the size of the population that economy is capable of supporting.

.

One of the neatest summaries I've seen on this situation and kinda of scary with it too! The force of global production has been in place for some time, yet the price of oil managed to go down for a while from last year. Yes, it's back up, but I find that a strange contradiction. Surely with global ouput being what it is, the price of oil should simply be on an upward trend. In fact, thinking about itk, it's dirt cheap. Why? I can't get to a logical conclusion that isn't a doomsday scenario, it's like global business is in complete denial or is it simply to enjoy it while it lasts? for example the conmtinued manufacturer of cars, planes, ad nauseaum.

I can't say whyu, but I think you've also outlined why the price of gold will rise (a questionI raised on another thread).

eidit not sure what happened there, but was not my fault -0 it's this crappy keyboard.

Edited by nosugarbaby
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Thats all very well and good but a barrel of the stuff in 2000 was about $15 fast forward 7 years its nearly $80, nothing much has changed, its not like every china man has swapped his push iron for a Hummer or the empty light has come on in the well, its more to do oil suppliers on a desert island with naked chicks right was we speak blowing coke out of their ar$es.

Nothing much has changed?

Did you sleep through 9/11. The war on terror. The war in Afghanistan. The war in Iraq. The North Korea nuclear test. The Iranian nuclear enrichment program. The decline of the North Sea. China and India doubling their GDP. The expulsion of western oil companies from Sakhalin. The admission Kuwait cannot increase production. The deterioration of West Africa. The damage caused by hurricane Katrina and Hurricane Rita. The Yukos trial.

Plenty has changed.

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Guest nosugarbaby
Nothing much has changed?

Did you sleep through 9/11. The war on terror. The war in Afghanistan. The war in Iraq. The North Korea nuclear test. The Iranian nuclear enrichment program. The decline of the North Sea. China and India doubling their GDP. The expulsion of western oil companies from Sakhalin. The admission Kuwait cannot increase production. The deterioration of West Africa. The damage caused by hurricane Katrina and Hurricane Rita. The Yukos trial.

Plenty has changed.

Do you have an opinion on what regions of the world in the next 30 years will be better of in respect to resources to maintain a certain lifestyle? When I say lifestyle I mean comparable to what we in western societies have today.

Edited by nosugarbaby
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Nothing much has changed?

Did you sleep through 9/11. The war on terror. The war in Afghanistan. The war in Iraq. The North Korea nuclear test. The Iranian nuclear enrichment program. The decline of the North Sea. China and India doubling their GDP. The expulsion of western oil companies from Sakhalin. The admission Kuwait cannot increase production. The deterioration of West Africa. The damage caused by hurricane Katrina and Hurricane Rita. The Yukos trial.

Plenty has changed.

I was reading about North Sea Oil in The Economist. Production has so far totalled 34 billion barrels and 20 billion is though to remain. But the remaining fields are small and geologically tricky to exploit. In 2003 the Government created cheaper licences to attract smaller specialist firms to extract the oil. Unfortuneatly the tax regime might hasten the decline of North Sea Oil (50% CT on new developments).

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Do you have an opinion on what regions of the world in the next 30 years will be better off in respect to resources to maintain a certain lifestyle? When I say lifestyle I mean comparable to what we in western societies have today.

Russia and Brazil are the two great resource economies of the world. But Brazil has a host of problems to overcome.

Moscow is destined for big things in my opinion. And the corruption, racketeering, fraud, and general ruthless nature of those in power will likely aid their relentless rise in statue and power as they assume the role of the hood standing rather heavily on the oxygen line of the terminally ill global economy.

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Guest grumpy-old-man
Russia and Brazil are the two great resource economies of the world. But Brazil has a host of problems to overcome.

Moscow is destined for big things in my opinion. And the corruption, racketeering, fraud, and general ruthless nature of those in power will likely aid their relentless rise in statue and power as they assume the role of the hood standing rather heavily on the oxygen line of the terminally ill global economy.

so the Russians replace the US, coupled with China as a "trading partner" ;) , add in Iran & Syria & you have a very, very formidable force indeed.

Don't know how that one will play out. :ph34r:

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The force of global production has been in place for some time, yet the price of oil managed to go down for a while from last year. Yes, it's back up, but I find that a strange contradiction.

Hint: oil demand and supply varies through the year. When supply increases or demand drops, the price drops.

Right now we're in one of the peak times for demand during the year with the hurricane season soon starting which may hit supply. Consequently the price is high.

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Russia and Brazil are the two great resource economies of the world. But Brazil has a host of problems to overcome.

Moscow is destined for big things in my opinion. And the corruption, racketeering, fraud, and general ruthless nature of those in power will likely aid their relentless rise in statue and power as they assume the role of the hood standing rather heavily on the oxygen line of the terminally ill global economy.

Yes, but history shows us (1970s oil crisis) that playing hard ball with global energy supplies tends to cause a global recession, which in turn tends to blow up in the face of the aggressor, in the form of reduced demand and political turmoil.

Not saying you're wrong, it's just that Russia doesn't have a great track record when it comes to political stability.

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  • 441 Brexit, House prices and Summer 2020

    1. 1. Including the effects Brexit, where do you think average UK house prices will be relative to now in June 2020?


      • down 5% +
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