Post by jeffolie on May 20, 2008 15:56:47 GMT -6
Crude oil continued to hit its new all time high of $128 today by closing above $127 for the first time, up 96% in 12 months and 165% in 3 years. The impact of the price hike is both inflationary and deflationary at the same time. Inflationary as oil is the life blood of the functioning of global economies and thus resulting in across the board price hikes. Deflationary impacts as the price hike acts as a tax on the consumer from fuel pumps to food stores thus leaving less money in the hands of the consumer to pay for the necessities let alone for luxuries.
This is creating a spiraling stagflationary environment, as on its own the western economies could have coped with the oil crisis, but having been hit with the triple whammy of deflating housing markets that itself triggered the bursting of the credit bubble that continues to deepen as banks fail to report the true extent of the crisis on the interbank LIBOR market.
Under historic circumstances one would imagine that in such a weak economic climate, the price of crude oil would start to retreat in the face of growing recessionary forces across the western world. However it is not and the primary reasons for this are:
The surging demand for crude oil amongst the emerging markets, where the anticipated reduction in demand in the west will be far outstripped by the increase in demand from the emerging markets , namely China and India, and to an increasing extent Russia. Crude oil demand continues to grow by more than 1% per annum with no sign that this will be brought to a halt despite the oil price flirting with $130.
PEAK OIL – The rate of increase in oil production is slowing as crude oil becomes harder to find and more expensive to extract. Many of the big oil fields from which oil is cheap to extract are ageing with output reductions already being observed across the oil producing nations big fields. This suggests that crude oil production will peak during the next 5 years. The rising price of crude oil will enable more costly oil fields to be brought on stream therefore oil production may plateau for some years whilst at the same time demand continues to rise. The consequences of which will be ever higher prices and inflationary forces.
The 40% devaluation of the US Dollar during the past 12 months or so has contributed towards the surge in the price of all dollar denominated commodities including crude oil.
www.marketoracle.co.uk/Article4771.html
This is creating a spiraling stagflationary environment, as on its own the western economies could have coped with the oil crisis, but having been hit with the triple whammy of deflating housing markets that itself triggered the bursting of the credit bubble that continues to deepen as banks fail to report the true extent of the crisis on the interbank LIBOR market.
Under historic circumstances one would imagine that in such a weak economic climate, the price of crude oil would start to retreat in the face of growing recessionary forces across the western world. However it is not and the primary reasons for this are:
The surging demand for crude oil amongst the emerging markets, where the anticipated reduction in demand in the west will be far outstripped by the increase in demand from the emerging markets , namely China and India, and to an increasing extent Russia. Crude oil demand continues to grow by more than 1% per annum with no sign that this will be brought to a halt despite the oil price flirting with $130.
PEAK OIL – The rate of increase in oil production is slowing as crude oil becomes harder to find and more expensive to extract. Many of the big oil fields from which oil is cheap to extract are ageing with output reductions already being observed across the oil producing nations big fields. This suggests that crude oil production will peak during the next 5 years. The rising price of crude oil will enable more costly oil fields to be brought on stream therefore oil production may plateau for some years whilst at the same time demand continues to rise. The consequences of which will be ever higher prices and inflationary forces.
The 40% devaluation of the US Dollar during the past 12 months or so has contributed towards the surge in the price of all dollar denominated commodities including crude oil.
www.marketoracle.co.uk/Article4771.html