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Jim Hamilton Welcomes the Rising Price of Oil

He thinks oil at $100 a barrel is good news:

Econbrowser: $100 a barrel: Crude oil reached a record high on Tuesday, and there's an embarrassing oversupply of theories to explain why.... Venezuelan President Hugo Chavez' decision to cut off sales of crude, gasoline, and diesel to ExxonMobil... output from West Africa has been reduced by problems in Nigeria... speculation that OPEC will cut production quotas... Monday's explosion at the Big Spring refinery in Texas... speculation that Shiite cleric Muqtada al-Sadr may announce his intention to abandon his participation in the present Iraqi cease fire....

[W]hat of those who say, like Joe Friday, "all we want are the facts." Well, here are some. On the same day that crude oil gained 4.8% in price, gold was up 2.6% and copper shot up 5.8%.... [L]et me bring up one more fact that I believe may be quite pertinent. The expected fed funds rate implied by the April fed funds futures contract shot up 7-1/2 basis points Tuesday. Whereas traders last Friday were anticipating an average fed funds rate of 2.415% for April, Tuesday's closing price brings that up to 2.49%.

Now, if you really try, you can still fit that last little nugget into your inflation meme. Say, traders know that $100 oil will scare the Fed into worrying more about inflation so Bernanke will have to slow down lowering rates. Or something.

Or you could try a line that to me seems a bit more natural: incoming data aren't confirming the initial notion held by many that a recession began in December. If so, it means that the Fed's easing will come to an end within a few months, and that the demand for oil, copper, and most everything else is going to be stronger than many of us had been anticipating as of a few weeks earlier.

If so, $100/barrel might not be as bad news as you thought.

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