February 28, 2012


Interesting piece on the dynamics of crudes recent rise.

This is the sleeper for the nascent US recovery and I fear that high gas prices at the pump in the US might choke off the recovery.

Looking forward to the supply response to bring prices down.


Oil producers normally find it in their best interest to add steadily to productive capacity. Gradual addition of capacity year after year keeps oil supply in rough equilibrium with demand as the global economy grows. Mild shortages and surpluses sometimes arise, but they are quickly addressed by market forces so long as monetary policy is anchored properly. It was really a monetary error that began throwing the oil market out of whack three years ago, one we wrote about at the time in forecasting a sharp decline in the price of oil. Specifically, it was the sharp deflation of the U.S. dollar which began in 1997-98. As the value of the dollar rose into deflationary territory — as measured against gold, the best proxy for commodities, many countries were forced to break their dollar links and devalue their currencies. This triggered major global disruption, first in Asia and then in…

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2 Comments on “”

  1. Velociraptor Says:

    You forgot the prefix anaemic in describing US growth. The GDP numbers aren’t pretty considering what the govt is borrowing and Fed pumping. You’d expect more as they just zoomed past 101% govt debt to GDP.


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