Tuesday, September 18, 2007

Good News?

The high finance boys whooped it up today on Wall Street after the Fed cut rates by a full half percent (OK, don't taunt me for predicting a 25 point cut; from what I read of the Fed's statement afterwards, there seemed to be a caution that the financial market shouldn't expect anymore, so maybe the Fed decided to do the opposite of ripping the band-aid off - they ripped it on). But, I was right about the immediate reaction in the commodity markets: oil shot up close to an all time high of over $82 a barrel (note, in a complete absence of bad news in the oil producing world), gold now costs over $730 an ounce, and the dollar fell to an all time low against the Euro. No doubt some people made alot of money today in the market (I'll bet Cheney's Old Europe bonds did fabulously), but all that money is going to buy us less. You might want to top off the gas tanks and stock up on imports, a.k.a. everything. The next bubble: stuff.


Anonymous said...

oil shot up close to an all time high of over $82 a barrel (note, in a complete absence of bad news in the oil producing world)

I live in an oil production state, and you are right about the complete absence of bad news. It's a party here.

This is good news for those worried about peak oil as well. The higher the price can get ASAP, the softer any landing will be as we get used to using less fuel. I've already seen people's behavior changing on these easy prices - but we need gas at $10/gal to get real results.

Here's a fun test for your forcasting skills: when will oil hit $100/bbl? This would cause people to pause, not to mention create some serious inflation across the board.

Patrick Deneen said...

It's true, I'm rooting for high prices (not that they need my help at all!). The problem is that the market signal is trailing the need to effect changes now, and we are being entirely reactive rather than proactive. If we know that constrained energy is in our future, wouldn't it make sense to accelerate our efforts to deal with it now, while we still have relatively ample supplies of energy to help us "fuel" the transition? The Europeans are much better positioned to deal with an energy constrained future due to their willingness to institute higher energy taxes.

As to your challenge: obviously I am not a prognosticator by trade. However, if all things were equal (which they never are), oil prices would have to move up about 20% from today's prices to reach $100 bbl. Prices have increased 35% since one year ago, so - all things remaining the same - it would take less than one year for us to reach that mark. Decreasing year over year production would accelerate reaching that point. Two major factors would intervene: either a recession, which would drive prices down (a less likely outcome with yesterday's rate cut by the Fed); or a cataclysm in an oil producing area, whether in the Middle East (e.g. an attack on Iran or a terrorist strike on the Saudi oil industry), Africa (a ramping up of violence in Nigeria), or the Gulf (a hurricane). This scenario doesn't seem altogether unlikely, and the Fed can't do much about it. So - my guess would be, sooner than later.

Anonymous said...

Prices have increased 35% since one year ago

Yes, but this increase is due mostly to fear about supplies (PO) and war, not based on any reality on the ground YET.

We shall see!