Some of these economists are correct
Some of these economists are correct — but which ones? The WSJ surveyed economists. The majority said “Bubble Isn’t Big Factor in Inflation.”
The global surge in food and energy prices is being driven primarily by fundamental market conditions, rather than an investment bubble, say the majority of economists in the latest Wall Street Journal forecasting survey. Fifty-one percent of the respondents said demand from China and India was the prime factor in soaring energy prices, and 41% said the demand was the chief contributor to rising food costs…The survey, conducted May 2-6, showed that the 53 respondents, on average, expect the price of crude to fall to about $105 by the end of next month and to about $93 by the end of the year.
Oil prices went up $15 a barrel in a week or so from just before the survey of economists to today. But there’s no bubble. Really. If oil goes up another $15 next week, what would that be?
We note a contrarian view that seems a bit more sensible: “‘Commodity markets have become a strange safe haven, with prices well out of line with underlying market fundamentals,’ said Diane Swonk of Mesirow Financial Holdings Inc. “I am dumbfounded that a report like employment report triggered a rally in oil prices…Just plain ridiculous’.” Indeed. But stay out of the way of that train.
May 9th, 2008 at 3:09 pm
Question: Can the oil producing countries be bulling up the price of oil by buying futures/options and then continually rolling their positions forward? And another question. In grains, when the market rockets higher on the futures, basis usually tend to widen out as end users are generally reluctant to chase higher prices. Do basis levels ever change in oil? A widening basis between spot and futures prices would indicate a slowing of demand, would it not? I realize my ignorance is glaring here, but one only learns by asking questions.