Posted on 03/08/2008 3:59:54 AM PST by Man50D
The recent rise in oil prices to over $100 a barrell has been fueled largely by speculators, anaylsts say, hoping to hedge against the falling dollar and an unstable world situation - especially in the Middle East and South America.
But that might change in the next few weeks:
The stunning price rise has been driven almost exclusively by investors who were bailing out of the dollar and other financial assets and pouring into commodities, Judith Dwarkin, chief economist at Calgary-based Ross Smith Energy Group, said yesterday.
“The fundamentals don't support prices at $80, let alone $100,” Ms. Dwarkin said. She said global demand growth has slowed in recent years, while spare capacity among members of the Organization of Petroleum Exporting Countries has expanded somewhat, even as inventories of gasoline are at robust levels.
“The greater prices diverge from what is fundamentally supportable, and the longer they stay at a distance from what is fundamentally supportable, the greater the risk of a correction, and a large one.” She has forecast an average price of $75 a barrel for this year.
Oil consumption in the developed world is dropping more sharply than anticipated just a few months ago because the subprime crisis has contributed to increasing economic weakness, Mr. Lynch said. Even emerging economies have slowed their demand growth in the face of record high prices, he added. This speculative bubble, analysts say, may pop before summer due to increased gasoline stocks and a slowing economy.
At this point, any drop would be a welcome relief.
Lenders are very gun shy. I was recently laid off because our commercial lending office was closed. It wasn’t closed for bad loans (there weren’t any). It wasn’t closed because of specific market weakness (our target market is almost universally felt to be the strongest in the US with least risk for the foreseeable future). It wasn’t closed to save money (the people laid off were almost all on 100% commissions). It was closed because the credit department was scared to make loans, plain and simple. And the credit losses in mortgage lending (which we didn’t do) had given the credit departments a lot of power, and tilted the very difficult balance between sales and credit much to far in the credit direction.
To all those questioning Bernake’s wisdom in increasing liquidity (which is reasonable) you need to remember that the mechanisms the Fed uses to stimulate the economy depend on the extra liquidity actually entering the economy and not just sitting on ban balance sheets. That simply isn’t happening the way it’s intended.
Just trying to share a positive message of hope and change with you.
Speculators drive up the price of oil as a hedge against the falling dollar.
Hmm.
That would mean that as long as our government pursues a policy that reduces the value of the dollar, more and more people will invest in oil - thus driving the price higher and higher.
So, to pop the oil bubble, all we need is an administration that actively works to INCREASE the value of the dollar.
(In other words, the oil bubble will pop as soon as we get a new president.)
I agree. Everything is pointing to stagflation.
Weak dollar + high commodity costs = hidden inflation
Hidden inflation = less money for the consumer to spend = recession
Recession + weak dollar + high commodity costs = 1970’s redux.
The only thing missing is the high interest rates. But that’ll come, for it’s the only thing left in our arsenal to boost the value of the dollar.
And if we boost the value of the dollar, then the commodity prices come down, paving the way for consumers to spend more, as they now can buy goods at a ‘cheaper’ price.
That is, if they have a job...
Yuk.
No cheers, unfortunately.
The folks at www.minyanville.com refer to this as "pushing on a string."
It's also why long-term US Treasuries have lower interest rates, but 30-year and 15-year fixed mortgage rates are going UP.
*ssholes.
No cheers, unfortunately.
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