Record Oil Prices: What does it mean?
June 10th 2008 12:19
Crude oil prices touched US$138.54 on 6 June. I’m convinced that very high oil prices are the worse a western economy can get. How does it affect you?
Oil price increases squeeze money away from consumers who then reduce their discretionary expenses, reduce the profits of business, increase inflation which then brings increased interest rates from central banks.
Consumers, specially, are hit hard: in Australia the high fuel prices come with increasing food prices, high rents and high mortgage repayment rates together with a declining economic cycle.
Most businesses have been containing their higher petrol costs but soon they will have to start transferring them to the customer. Qantas increased its prices by 4 per cent; Virgin Blue will charge for checking in.
The problem of the high oil prices is one of supply and demand. OPEC claims it cannot produce any more oil at this stage, not a drop more. Oil producing companies in the west have resorted to explore deposits which were not viable before and are still not very good.
Bourgeoning India and China and perhaps also Brazil and Russia as well are demanding enormous quantities of oil every day. In the United States the driving summer season started and demand for oil will increase.
There should be a lot of money going to OPEC countries right now. Which banking entities keep it in a safe? In what is it being applied? Could it be used to feed western economies with credit and so reduce the credit crunch now underway? I wonder.
Oil price increases squeeze money away from consumers who then reduce their discretionary expenses, reduce the profits of business, increase inflation which then brings increased interest rates from central banks.
Consumers, specially, are hit hard: in Australia the high fuel prices come with increasing food prices, high rents and high mortgage repayment rates together with a declining economic cycle.
Most businesses have been containing their higher petrol costs but soon they will have to start transferring them to the customer. Qantas increased its prices by 4 per cent; Virgin Blue will charge for checking in.
The problem of the high oil prices is one of supply and demand. OPEC claims it cannot produce any more oil at this stage, not a drop more. Oil producing companies in the west have resorted to explore deposits which were not viable before and are still not very good.
Bourgeoning India and China and perhaps also Brazil and Russia as well are demanding enormous quantities of oil every day. In the United States the driving summer season started and demand for oil will increase.
There should be a lot of money going to OPEC countries right now. Which banking entities keep it in a safe? In what is it being applied? Could it be used to feed western economies with credit and so reduce the credit crunch now underway? I wonder.
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Comment by Mike Landfair
Market Bugle
The Wall Street Journal reports