Where’s the Cavalry?
OPEC is not riding to the rescue. According to a NYT piece, OPEC is satisfied that the world has enough oil, even though the price of oil adjusted for inflation hit an all time high: $103.76 versus $38 in 1980 “at the height of the Iran hostage crisis.”
OPEC apparently believes that the U.S. economic downturn will be enough to lessen the price of oil. We shall see. I wonder how much of a downturn we need? According the Energy Bulletin, China’s newly acquired taste for oil is part of what is escalating the price:
Double-digit demand growth in China is a fundamental driver of the oil price. The United States and China are locked into a spiraling mutual dependency in which the People’s Republic manufactures consumer goods and Americans buy them. China’s share of world oil consumption is now about 9% and rising yearly.
As David Cohen, the writer of the Bulletin piece, so exquisitely points out, China is faced with a real dilemma:
If Wen Jiabao continues the price freeze to tame inflation, he risks fuel shortages as subsidized demand spirals out of control. Supply insufficiencies force the Chinese to import more oil and refined products, which drives up world crude prices. Higher oil prices mean lower crack spreads for Chinese refiners who already operate at a loss.
On another front, Bob Herbert has an interesting piece about price of the Iraq war. According to Joe Stiglitz, the war that has no end already will cost us around $3 trillion.
Then Nouriel Roubini says that the subprime disaster may well be in excess of $1 trillion. And, all expect the FED to cut rates further, not that the cuts already have eased the plight of homeowners. In fact, quite the opposite: Rates went down; mortgage rates went up. Banks needed the cash and were quite eager to recoup their losses any way they could. As I pointed out in a prior piece, “The Latest Banking Scam: Which Dog to Kick,” banks are now sneakily increasing overdraft fees.
On yet another front, England finally had to nationalize Northern Rock–until it got its legs back. Then, of course, once the government sets its books aright, back into private hands it will go. Yes, you heard me. The plan is to turn it eventually back into private hands.
Some are asking for more transparency, more regulations. Dream on.
No OPEC cavalry riding to the rescue.
So here we are, between a rock and a hard place: Oil continuing its relentless rise. Inflation is on the prowl. And trillions are being sucked from the economy either through misadventure or greed.
After a while, I just have to ask: Who in hell is running this show? Anybody in charge?