> NY Times, April 29, 2008 > Oil Price Rise Fails to Open Tap > By JAD MOUAWAD > > As oil prices soared to record levels in recent years, basic economics > suggested that consumption would fall and supplies would rise as producers > drilled for more oil. > > But as prices flirt with $120 a barrel, many energy experts are becoming > worried that neither seems to be happening. Higher prices have done little > to suppress global demand or attract new production, and the resulting > mismatch has sent oil prices ever higher.
This seems dollar-centric (to coin a word) and therefore incomplete. It's true that the US dollar price of oil has risen, but the purchasing power of the dollar has also fallen as the dollar depreciates. It's true that oil is "priced" in US$, but what its sellers (and the market) care about is what goods, services, and assets they can buy with their US$. In fact, one of the reason why the US$ price of oil is rising is because the US$ is falling. The US$ price of oil (Spot Oil Price: West Texas Intermediate) rose by 55.6% (more than doubled) between March 1, 2007 and March 1, 2008. But the US$ fell by 15.8% relative to the Euro during that period. So the Euro price of oil rose by only 39.7% during that period. It's still a significant increase, but it seems to me that if one is concerned about the incentive to dig up new oil (as this article is), that price counts more than the US$ price. Part of what we're seeing with oil prices is a vicious circle: the falling dollar (happening for various reasons, including falling US interest rates and non-falling Euroland ones) causes the rising US$ price of oil (and gasoline). That hurts the US economy and confidence in it, which in turn encourages the US$ to fall further, so that the US$ price of oil rises again. Something like this happened during the 1970s, too. Of course, all of this is no consolation for the fact that the last time I filled my tank it cost about US$3.96 per US gallon of regular. After all, I get paid in US$, not Euros. But it does help that my car gets about 40 miles per gallon. -- Jim Devine / "Segui il tuo corso, e lascia dir le genti." (Go your own way and let people talk.) -- Karl, paraphrasing Dante. _______________________________________________ pen-l mailing list [email protected] https://lists.csuchico.edu/mailman/listinfo/pen-l
