Changes in oil prices are not usually that interesting for me, but I am a little dumbfounded by the connections these reporters assume. This story claims that prices are rising–now to about $82–because the stock market has boosted consumer confidence and the demand for oil products will rise as a result.
Another thing pushing prices up is the falling value of the dollar. Americans import so much oil that a falling dollar makes oil and gasoline more expensive. Of course, the falling value of the dollar is also adding to consumer confidence because the demand for US exports is going up. OK. In this indirect way the correlation makes sense.
Fine. But what about the effect of higher oil prices on everything else? We have seen it in the states since the 1970’s– Oil prices rise, manufacturing and transportation costs go up, investment and economic growth slow down. It seems to me then, that as long as investors see oil demand correlated with market confidence, oil is working as a natural counterbalance to both excessive growth and excessive decline. Maybe that is a good thing, eh?
Or maybe some of these connections are suspicious. Maybe consumer confidence is more and more going to allow people to switch to alternative energy sources, at least in the developed world.
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