Weird Justification

Yes, well, we know that they\’ve got to write something to fill the papers but this is a very weird justification for yesterday\’s rise in the oil price:

The price of crude oil was catapulted $11.31 to a new all-time high of $139.12 in New York, its biggest one day gain in dollar terms on record, driven by an almost unprecedented rise in US unemployment….

That the world\’s largest economy is faltering is a very odd indeed explanation for a rise in a commodity price.

Recession (for example) in said economy would be expected to reduce the oil price of course.

It is possible to construct stories that justify the rise and the employment figures….that the increased liklihood of recession means that interest rates might be powered again, thus lowering the dollar and thus raising the price of oil in those dollars…..but that\’s not what they said.

What they actually did say seems to me just to be bizarre.

Strangely, The Guardian gets it rather better:

Oil prices leaped to another record high yesterday as Israel warned Iran about its nuclear sites and the dollar slumped on news of the biggest jump in US unemployment for 22 years.

5 thoughts on “Weird Justification”

  1. The MSM is using the rising oil price to push their own particular agendas.
    The problem is regulations that has created a shortage of sweet crude. The quick and dirty solution is allow a higher sulphur content in diesel and then start building refineries to handle the plentiful heavy crude oil.

  2. Note that althought the jobs report was the catalyst for the oil price to leap, it can’t just be the dollar, as the price in euros (the strongest currency) jumped as well, unless (and this is possible) the oil price is being used as a dollar hedge. Barclays suggest, btw, that it’s the other way around, the high oil price leads to a weakening of the dollar.

    Anyway I’m surprised you missed the howler of a typo on this article (near the start)

    http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2008/06/07/cnopec107.xml

    we really are doomed…

    Tim adds: Didn’t read it all all….Peak Oil arghuments now bore me. But you’re right.

    “It takes a staggering 20bn barrels a day to feed America’s addiction to oil. ”

    Sheesh.

  3. Btw I hope you didn’t take out your short oil investment

    Tim adds: No, the paperwork required to open an account was such that I didn’t bother.

  4. Actually I think I can make the Telegraph’s argument work. Unemployment is a lagging indicator. S o it tells us that the US economy in Q2 has been very poorly, yet we also know that oil soared above $130/b even so. Hence demand elsewhere must be really strong, or US demand is impervious to a slowdown. Cue buy oil…

  5. “the plentiful heavy crude oil.”

    Kit, its not that plentiful. Last year Ural Crude (heavy Russian) was only about $2 cheaper than Brent.

    As a further complicating factor, the price of Sulphur, a key ingredient in fertiliser, is at record levels, despite massive increases in production at refineries.

    The real problem is that more than half the world’s population cannot respond to price changes as they recieve subsidised fuel. Eliminate subsidies in China, India, Indonesia and across the Middle East, and prices would fall.

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