Economics – Oct 17

October 17, 2007

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Soaring oil prices have yet to derail economy

John W. Schoen, MSNBC
Surge in crude so far has had limited impact at pump, wallet levels

With oil prices touching new highs above $88 a barrel Tuesday, the financial markets and the economy seem to be largely unfazed – at least so far. And despite the rapid run-up in the cost of crude from about $60 just two months ago, motorists have been watching pump prices fall. What’s going on here?

The question is all the more puzzling because, while strong demand and limited production have kept oil supplies tight for much of the decade, current inventories appear to be adequate to keep the market supplied. U.S. inventories have been falling recently but remain above the five-year average level for this time of year.

…One big reason for this apparent paradox is that much of the run-up in prices is being fueled by demand from investors, not consumers. Investors have stocking up on oil futures for a variety of reasons. Earlier this summer, many were betting a strong hurricane or two in the Gulf of Mexico could lead to Katrina-like supply cutoffs to the U.S. market.

More recently, worries have centered on events in the Middle East.
(16 October 2007)
MSNBC’s John W. Schoen is aware of peak oil and has written about it previously. -BA


Economies adjust to an oil price heading for $90 a barrel

Ed Crooks, Financial Times
Only a month after breaching $80, the price for a barrel of oil is now heading towards $90, scaling heights barely conceivable a few years ago.

A year ago the Inter-national Monetary Fund’s economic forecasts were based on an assumption that oil would average $75.50 this year. The IMF’s annual meetings are likely to take place this weekend with the price almost $15 higher.

Yet global growth has remained remarkably robust. The world has shown that it can live with oil at $70 a barrel and higher.

William Ramsay, deputy executive director of the International Energy Agency, which represents the rich countries’ interests in the oil market, says: “What we have had in the market is a demand shock, not a supply shock, and the system reacts differently.”

The IMF’s World Econ-omic Outlook in April set out a model of a rise in the oil price that could be accompanied by stronger, not weaker, global growth, if it were caused by a rise in demand from fast-growing emerging economies.

With China leading the growth in oil demand, that seems to be exactly what is happening.
(17 October 2007)


When oil prices rise, so does just about everything else

Elizabeth Souder, Dallas Morning News
Record crude costs ripple through our entire economy

When oil gets expensive, everything gets expensive. Everything.

Think about it: Almost everything we consume must be transported in boats, planes, trains or trucks that run on petroleum-based fuel. And a lot of consumer goods – and their packaging – are made of petroleum-based plastics or chemicals.

On Tuesday, the crude oil futures market closed at a fresh all-time high of $87.61 a barrel. Already, companies have begun raising prices for fuel, freight, air travel and chemicals.

Why are oil prices rising?

Bottom line: There’s not much excess oil supply. Any flare-up in the world can cause the jittery oil market to jump. Middle East tensions worry investors about supply constraints.
(17 October 2007)


The Finance Round-Up: October 17th 2007

Stoneleigh, The Oil Drum: Canada
A bailout of sorts appears to be underway for the Enron-esque off balance sheet financial conduits known as Structured Investment Vehicles (SIVs), similar to the on-going Canadian attempt to rescue frozen Asset-Backed Commercial Paper (ABCP). However, the US Treasury-supported use of Frankenstein finance to bail out the effects of past Frankenstein finance smacks of desperation rather than inspiring confidence.

Something had to be done to forestall a looming firesale of assets that none of the banks want marked to market, but 90 days may well be too long to wait when a crunch period is fast approaching, and $100 billion may not be enough. With problems emerging for both commercial real estate and consumer spending, as well as ARMs resetting, all on top of the SIV/ABCP deepfreeze, it’s hardly surprising that this rescue plan has been described as “rearranging the deck chairs on the Titanic”.
(17 October 2007)
Headlines and excerpts at the original.


Tags: Fossil Fuels, Oil