The price of oil

BV · 15-06-2008, 11:31 PM

Quote:

Originally Posted by Chris C

What will be really interesting is how oil prices react to the latest announcements that Saudi Arabia (the worlds biggest producer of oil) is going to increase their supply to prevent price getting to a point that they stimulate innovation.

It's a bit of a shame for the world in the long run especially with our battles against climate change, but I get the impression that it will definitely restore a lot of confidence back into the world knowing that the world's biggest produce of oil isn't going to let things get completely out of control.

Does anyone else think that this might be a big turning point in this current economic slow down?

I think it is. I also expect the US$ to start coming back up a bit.
I am actually surprised OPEC didn't wake up earlier.
The way they are going they are shooting themselves in the foot
Petrol is way too expensive and people are now moving to alternative fuels such as LPG and ethanol or switching to smaller cars or electric/hybrids.
Major car manufacturers are starting to mass produce hybrid cars.
Electric cars are very cheap to run and we don't have to Que up at the petrol station to fill them up.

This change is good for the environment but not for OPEC.
Their customers are walking away and the increased consumption from china won't save them.
China will soon be copying the major car manufacturers and will be mass producing electric cars.

Cheers

lorrimer · 16-06-2008, 12:33 AM

Quote:

Originally Posted by BV

I think it is. I also expect the US$ to start coming back up a bit.
I am actually surprised OPEC didn't wake up earlier.
The way they are going they are shooting themselves in the foot
Petrol is way too expensive and people are now moving to alternative fuels such as LPG and ethanol or switching to smaller cars or electric/hybrids.
Major car manufacturers are starting to mass produce hybrid cars.
Electric cars are very cheap to run and we don't have to Que up at the petrol station to fill them up.

This change is good for the environment but not for OPEC.
Their customers are walking away and the increased consumption from china won't save them.
China will soon be copying the major car manufacturers and will be mass producing electric cars.

Cheers

Well I'd be getting a little nervous now if I was long oil.
Could be an interesting week ahead.
I actually think it was a very clever move by the US to state at the G8 meeting that the problem was supply related rather than speculation.
Let's hope that some good has come out of peoples suffering throughout the world, and we continue the move away from fossil fuels.

eddyl · 16-06-2008, 09:37 AM

Quote:

Originally Posted by lorrimer

Yes the RBA are completely independent and their remit is to keep inflation within certain levels.
However this doesn't mean that the government shouldn't at least be trying to exert some external pressure to make them think slightly differently.
I do not believe that fighting inflation should be the one and only consideration and be fought at all costs, especially when much of the inflation is imported.
But rather than help the Australian people by stating the significance that the oil price is having on inflation, they seem to be constantly talking up internal inflationary pressures.
Since Bush decided to invade Iraq the price of oil has shot up by some 400%.
You don't have to bee a brain surgeon to work out that this in itself is a huge inflationary pressure, given that everything that we buy or consume needs to be transported from A to B.
I would love to hear someone from this government come out and say something to try to bring some confidence back to the financial markets.
When the sub-prime crisis first broke, I recall Costello coming out and stating that we shouldn't be as badly affected as the US because our banks were far more conservative in their lending practices, and our economy was still strong.
As yet the write downs from Aussie banks has been minimal in comparison to those in the US.
Despite this our stock market has performed far worse the both the US and the UK.
By my reckoning we have now had four corrections of 10% or more in the past 12 months.
Confidence in the stock market has been shattered and some peoples Super funds have been decimated. Meanwhile this government has stood idly by and watched it happen without hardly a whisper.
The other thing that I find hard to understand is how interest rates here can be so high when Australia sources it's money from overseas markets. The Aussie dollar has never been as high and interest rates in the US and UK are much lower than here.
Once again I've heard nothing from the government on this matter either.

I'm not sure what you think the RBA would achieve by keeping inflation low? Do you want to keep stimulating investment, in an economy which is extremely debt ridden, and for all intents and purposes over heating.
The interest rates are high, because the RBA sets the official cash rate, this dictates the interest rates that Banks charge. Simply put the equation is RBA cash rate+ margin(real interest rate) = Banks interest rate

dmesh87 · 16-06-2008, 02:15 PM

Similar to a previous poster i have not experienced any major business cycles being only 21 and have only taken an interest in the share market in the last few year but will post my views from what i've seen.

It seems at this point though that the forces of supply and demand will take their course as OPEC seems to have waken up to the fact that they are hurting the economy of one of their biggest customers in the United States and reducing demand. Also if the prices become high enough I believe the U.S senate will start to care less about the environmental impacts of drilling in the national parks of Alaska or off the coasts of Florida and realise how high oil prices are spurring inflation and hurting their economy and so will increase domestic production in response to the oil prices. And also importing much of their oil gives partial control of their economy to foreign countries that are their enemies (venezuala and much of the middle east), which is also not in the U.S's best interests.

Due to this i believe these oil prices are not sustainable for the long term, especially in the U.S and as the prices go further up measures to increase supply or reduce demand by whatever means (alternative fuels or increasing domestic production in the US) will be hastened.

lorrimer · 16-06-2008, 05:13 PM

Quote:

Originally Posted by eddyl

I'm not sure what you think the RBA would achieve by keeping inflation low? Do you want to keep stimulating investment, in an economy which is extremely debt ridden, and for all intents and purposes over heating.
The interest rates are high, because the RBA sets the official cash rate, this dictates the interest rates that Banks charge. Simply put the equation is RBA cash rate+ margin(real interest rate) = Banks interest rate

I thought I had a reasonable understanding of the economy, but now I'm completely baffled.
Why on earth would the RBA not want low inflation and discourage investment?
Are we extremely debt ridden? The US is extremely debt ridden and their interest rates are 2%.
I don't see too many Aussies around my way driving flash cars and living way above their means. I do see quite a few struggling to make ends meet however.
Should this really be happening during such times when we are all supposedly enjoying the fruits of the resources boom? Why on earth should we be even talking about the 'R' word when we, one of the most resource rich nations on the planet, are busy supplying the raw materials to the fastest growing nation/region in the world.
My own feeling is, get the oil price back down to 70-80 cents and inflation will take care of itself. In other words the RBA's inflation target was set during times of far cheaper oil and is simply unattainable with oil prices at their current level.

bennymarsh · 16-06-2008, 06:12 PM

Quote:

Originally Posted by lorrimer

I thought I had a reasonable understanding of the economy, but now I'm completely baffled.
Why on earth would the RBA not want low inflation and discourage investment?
Are we extremely debt ridden? The US is extremely debt ridden and their interest rates are 2%.
I don't see too many Aussies around my way driving flash cars and living way above their means. I do see quite a few struggling to make ends meet however.
Should this really be happening during such times when we are all supposedly enjoying the fruits of the resources boom? Why on earth should we be even talking about the 'R' word when we, one of the most resource rich nations on the planet, are busy supplying the raw materials to the fastest growing nation/region in the world.
My own feeling is, get the oil price back down to 70-80 cents and inflation will take care of itself. In other words the RBA's inflation target was set during times of far cheaper oil and is simply unattainable with oil prices at their current level.

I don;t have the figures, but we spend far more of our earnings on mortgages for our primary residence's than most countries in the world. And that's where our debt problem comes from, no from flash cars. And the issue with debt in the US is that due to poor regulation, people who definitely couldn't afford their mortgages were given even more debt to play with. But that in itself hasn't caused the debt crisis, it's the fact that debt back securities get repackaged and sold off as safe assets, and when they fail, people lose confidence and refuse to more money into the system.

Also it's not todays price of petrol which is the inflation issue, it's the increase in price. If the petrol price stayed stable here for the next 12 months, there would be no inflation issue. Petrol prices going back to 80cents would be nice, but it won't solve the inflation problem, and it won't solve the long term petrol issues. Petrol prices are always going to go up in the future, people just need to deal with it rather than whining about it ie SELL YOUR 4WD!

Tropo · 16-06-2008, 08:20 PM

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http://www.lyadvisors.com/samplerepo...1.2007.Oil.pdf
and
Bloomberg.com: Exclusive

Chris C · 16-06-2008, 10:02 PM

Quote:

Originally Posted by lorrimer

I thought I had a reasonable understanding of the economy, but now I'm completely baffled.
Why on earth would the RBA not want low inflation and discourage investment?
Are we extremely debt ridden? The US is extremely debt ridden and their interest rates are 2%.

I don't mean to come across rude, but what the RBA is doing is pretty standard practice all around the world when it comes to managing an economy at a macro level.

So if you say you're struggling to grasp some of these economic decisions the RBA is making I highly recommend investing some time into reading some materials on the economics to get a better grasp of the major principles.

I personally beleive, that if you want to become wealthy in life, studying Economics is one the best investment you could make, because I think it best explains how and why the world works the way it does, and when you know how the world works then you can preempt the trends and position yourself wisely for them.

As for what books to read, I got most of my understanding out of textbooks and doing reports, but I also own a copy of "Naked Economics" which I haven't read yet but it received great reviews, and I'm hoping to get around to it soon. Also if you are interested in reading some of the more interesting applications of economics a very popular book recently written called "Freakonomics" is a good read.

eddyl · 17-06-2008, 09:59 AM

Quote:

Originally Posted by lorrimer

I thought I had a reasonable understanding of the economy, but now I'm completely baffled.
Why on earth would the RBA not want low inflation(1) and discourage investment?
Are we extremely debt ridden?(2) The US is extremely debt ridden and their interest rates are 2%.
I don't see too many Aussies around my way driving flash cars and living way above their means. I do see quite a few struggling to make ends meet however.
Should this really be happening during such times when we are all supposedly enjoying the fruits of the resources boom? Why on earth should we be even talking about the 'R' word when we, one of the most resource rich nations on the planet, are busy supplying the raw materials to the fastest growing nation/region in the world.
My own feeling is, get the oil price back down to 70-80 cents and inflation will take care of itself(3). In other words the RBA's inflation target was set during times of far cheaper oil and is simply unattainable with oil prices at their current level.

1. The RBA does want low inflation, this is what monetary policy aims to do(by raising interest rates). However, monetary policy is not as simple as this. When you raise interest rates, it discourages investment, and in turn this helps to slow the economy, and slow down supply driven inflation. The criticism of the RBA is that this is demand side inflation.

2. Our current account sits at approximately 610 billion dollars. This is not very explantory by itself, because debt is not necessarily a bad thing as this forum teaches us. But the status quo is that Australia is a borrower, not a lender.

3. This is true, but the RBA does not set the spot price for oil. This is dictated by the futures market. It is argued that the hike in oil prices is being caused by speculation rather then underlying demand.

lorrimer · 18-06-2008, 02:29 AM

Quote:

Originally Posted by eddyl

I'm not sure what you think the RBA would achieve by keeping inflation low? Do you want to keep stimulating investment, in an economy which is extremely debt ridden, and for all intents and purposes over heating.
The interest rates are high, because the RBA sets the official cash rate, this dictates the interest rates that Banks charge. Simply put the equation is RBA cash rate+ margin(real interest rate) = Banks interest rate

So did you mean to say "interest rates" rather than "inflation" in the first line.
That's the bit that really confused me!
Thanks for the clarification,
Lorrimer