Sunday, August 29, 2004

Economic fallout of $50 a barrel

Are they really as serious as they are made out to be? Scott Peterson discusses Results of high oil prices.
...The high oil prices, which climbed to a record high of $49.40 per barrel last Friday, may scare consumers and keep up gas prices. The effect worldwide is real, too. Every $10 added to a barrel of oil is estimated to knock "at least half of 1 percent ... equivalent to $255 billion" off world GDP, according to analysis in May by the International Energy Agency (IEA) in Paris.

...One concern is government overreaction. "In the 1970s, governments went way overboard, and spent billions of dollars on alternatives," says Lynch. "I don't think we're at that point yet."

Still, a $50 barrel price was unforeseen just a year ago, and may be higher than black gold is worth.

"Between $48 and $50, there is no difference - it's psychological," says Roger Diwan, at the consultancy Petroleum Finance Company in Washington. "No one is really transacting at these prices, because people who buy oil think it is not a fair price. A lot of the action is happening in the paper market, among speculators, and they are driving the market."

"But at one point, those two realities have to collide," says Mr. Diwan. "And that is just a matter of time."

I specially like the government overreaction part!


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