There is an illusion afoot that the record July drop in oil prices is significant. It is not. As long as oil is well above $100, the inflationary effects will be damaging, and the ability of key industries, including the automotive and airlines, to recover will be significantly compromised.
The only real hope for parts of the economy that depend on a lower price of crude is that much of the run-up has indeed been caused by speculation. If so, crude may have much further to drop.
One of the key oil officials in Kuwait has commented that oil will not returned to over $144, but that it will not drop below $100. According to Reuters, "I don't think that prices will return to the record level, nor will they fall below $100 per barrel," Khaled Boodai told al-Seyassah newspaper. If he is right, a sustainable economic recovery is far off.
Much of the recent recovery of the stock market is based on the drop in oil. That means it is a mirage. Oil at $144 would have undermined all economic growth in the U.S. very quickly. As long as crude stays above $100, the process will still occur. It will just be a bit slower.
Douglas A. McIntyre is an editor at 247wallst.com.
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Reader Comments (Page 1 of 1)
8-03-2008 @ 1:53PM
jsmith said...
Lets see these muslim towel heads owe us HOW MUCH for saving their postage stamp sized country..
Big talk from some dumbass who was crying in the streets in 91 when the U.S. saved them from Hussein!
Piss up a rope Kuwait...next time you can fry!
8-03-2008 @ 4:05PM
william lindblad said...
.Doug I would like to join you in dreamland but this is not in the cards - at least not yet. First things first, and that is the next move to decrease the price. A quarter (.25 basis) point hike in the Fed rates. There are many that will argue against such a move, but it would be nothing more than psychological as it would not effect the credit crunch one iota. What it would do is keep pressure on the dollar/ euro disparity and possibly push the trading range of a barrel back into the 115 range. As to the long term economic effect, oil has been trading too high for too long and that damage is already built in. As Mr. Murphy aptly pointed out - things will go wrong, usually at the worst possible moment. IF the U.S. has a hard winter, it will be the moment
8-03-2008 @ 6:49PM
ChuckBarlow said...
They way I see it with KUWAIT and IRAQ they should pay us for the cost of the war in oil, would should not pay for 1 penny, it really bothers me the US Miliatry in Iraq is paying for gas at over $8.00 a gallon while Kuwait is paying under $.80 for a gallon, we should be supplied gas since we defended them.
We free nations of evil dictators and liberalize them at our cost and even give them more money, if we got backall the money owed to us for defending other nations alone we would not have a deficit and thats not including the billions poured into humanitarian releif, now time to clean out our own governent, they give their self raises and retire at $15,000 a month, they should get average wage for their regions wage reports from department of labor if they are elected and serve 20 years only, the military does not get $15,000 amonth after 30 years of risking their lives!
8-04-2008 @ 6:07AM
al coholic said...
Doug,
What recent recovery are you talking about? The one where we clawed our way back to the index levels of ten years ago?
Our current economic problems don't revolve solely upon the price of oil. If oil costs were our only concern we would be treking along just nicely, thank you.
In fact a case can be made that high price oil may ultimately be the catalyst for a permanent solution to oil. Just this morning I read about an MIT group that has figured out a way to store solar power by converting water into hydrogen and oxygen to power fuel cells ensuring steady power from solar even in times of darkness.
8-05-2008 @ 9:43AM
Howard said...
What gets me is this --our so called friends and neighbors to the north, Canada --and Mexico to the south ---why are they collecting over a hundred dollars a barrel? Friends?? I don't think so!
We import much of our oil from them!
At least we should get a DISCOUNT!