Joseph Trevisani

Oil Shocks, and What They Hold for the US Economy

Oil is the basic industrial commodity and will remain so for at least a generation. This is not a comment on the desirability of an oil based economy but a recognition of fact. It is the availability of cheap energy more than any other development that has enabled the industrial revolution and the rise in living standards, so we should be hesitant to consign oil to the past. It is the most potent transportable fuel known.

The era of inexpensive oil does appear to be ending, though we should be cautious because many prior shortages (food, light metals) have been declared only to vanish as new technologies appear and evolve.

Drilling for available oil also does not does not mean we should not pursue all alternative sources of energy. We should. Oil will be sold at the world market price, that is true. But the market price is determined by more than current supply and demand. The perception of future supply and demand, as we have seen this past year, can have an overriding impact. It is this perception of future supply that will be affected by current drilling. There is little doubt that oil is available and that at $100 and more a barrel it is profitable to extract. The idea that we should not drill because it will take five or ten years to see the product is not a serious objection. Doesn’t that objection also apply to every form of alternative energy? Should Toyota not have invested in hybrid technology ten years ago because it would not have been available immediately?

I thank you all for your comments. I very much enjoy hearing from readers.

For the question about Ossining N.Y. Yes I did grow up in that old river town.

Joseph Trevisani
Chief Market Analyst
FX Solutions
[e-mail]

The Dollar Holiday Blues

In July 2007 the average price of retail premium gas in six European countries (Belgium, France, Germany, Italy, Netherlands, UK) was $7.14 per gallon. At the end of June this year it was $9.06, a 26.9% increase. In the US the price rose from $3.17 to $4.31, a 36% increase. The difference being the decline in the dollar against the euro. Americans are paying more for their fuel relative to the Europeans than a year ago, but that does not mean the European are not paying more as well. Higher fuel prices have the same damaging effect in Europe that they have here. It is the differential price that matters to consumers and economic growth not the absolute level.