The oil bet

[mrlloyd]

Is moving close to positive territory. If I'd picked Brent Crude as the oil of choice I think I'd be up today, for the first time in the history of the bet. As it is, Sweet light crude on the New York exchange is the bet, and while it's over $100, there's a few years of inflation to account for yet

Comments

[condign]

One problem I hadn't thought of at the time - high oil prices may cause recessions, which reduce oil prices.

Would you be surprised to learn that I had thought of that? It's not really that rising oil prices cause recessions, but that there's a feedthrough effect to the economy, and thus they limit growth. Oil/energy is an input, and thus increases the price of just about everything. Rising oil prices have the effect of switching consumption patterns away from energy-intensive activity (or reducing consumption if no alternatives are available), and raising the price for everything else.

Likewise, there's a solid argument that some of the oil price rise is being stoked by a flight to commodities (due to inflationary fears), which hedges me two ways: if there is high inflation, it that's taken into account for our bet. If monetary worries that are stoking inflationary pressures ease, prices are likely to fall.

[glittertigger]

Libya may only supply about 2% of the oil, but I believe what it supplies is particularly sweet and light, so disruptions there will have more effect on the grade you are looking at than you might expect.

Also, it was great to see you at the weekend :)