By David L. Brown
There is more news about oil prices, news that most deem bad but which in my opinion might actually be good for future prospects for the U.S. Here is the latest oil price news from the Associated Press:
NEW YORK — The surging price of oil reached another milestone Monday, jumping to an inflation adjusted record high of $103.95 [per barrel].
The weaker dollar that has propelled oil and other commodities prices higher sent light, sweet crude for April delivery past $103.76 a barrel on the New York Mercantile Exchange. That is the level many analysts consider to be the true record high for oil, after its $38 barrel price from 1980 is translated into 2008 dollars.
The price later traded up $1.81 at $103.65, fluctuating with the normal ebb and flow of trading.
Why do I consider this to be good news? Because the more oil prices remain high, the more likely that demand will fall as consumers practice more conservation, make wiser buying decisions when it comes to new cars and trucks, and make energy efficient choices at work and at home. It also encourages development of alternatives to petroleum.
According to the AP, the weak Dollar is the problem, causing investors to buy commodities futures instead of putting money into Dollar vehicles. The AP story says that “[o]il’s most recent run into record territory has been driven by the dollar’s slump against other world currencies. Crude futures offer a hedge against a falling dollar, and oil futures bought and sold in dollars are more attractive to foreign investors when the dollar is falling.”
Well, that may be true, but the upward pressure on petroleum prices may be short lived, because as some analysts point out supplies are rising and that might soon push oil prices back down. Some predict a price in the $65-70 per barrel range while others say that prices may touch $120 a barrel. The Energy Department’s latest forecast predicts that oil will average $86 a barrel in 2008, compared with $72 last year. That is significant but by no means catastrophic. What may be more important as far as the big picture is concerned is what is happening to the Euro, which seems to be on a rocket ride. The AP story mentions that:
The dollar has been weighed down by concerns about the U.S. economy and the Federal Reserve’s interest rate-cutting campaign. Lower interest rates tend to weaken the dollar, which fell Monday to a new low of $1.5275 against the euro.
One thing that doesn’t seem to be mentioned in press reports is that the falling Dollar is not necessarily the worst thing that could happen for the U.S. The Euro is rising in runaway fashion, which as in this report is generally portrayed as positive, while the falling Dollar is looked upon as negative. Well, from some points of view that may be true, but just ask European exporters that have seen the need to raise prices dramatically on everything from wine and cheese to luxury sedans. That’s because it takes more dollars to pay for an equivalent value in Euros, the monetary unit of the European Union nations. For a small example, I used to enjoy French Camembert cheese, but at recent prices I have given it a pass.
That means that members of the European Union are not happy with their high Euro, not happy at all. In fact, their runaway currency is savaging their already fragile socialist economies. Americans and other nations where currencies have not shared the Euro’s dizzying climb are turning away from Euro-priced products and commodities and, well, at least to a growing extent buying American. Did you ever think you would see that again?
I hope it is a trend that will continue. I recently tried to make a vow not to buy any item marked MADE IN CHINA, but soon observed that in most cases the only alternative was not to buy anything at all. Well, the reason is that everything from China is cheap, and at least we can take sustenance from the fact that stuff from Europe is now priced into the stratosphere, so for Europeans American products and services are becoming bargains along with the dreck from the Middle Kingdom, where inflation is beginning to undermine their position as a source of cheap goods.
Of course petroleum is priced in Dollars, so Europeans are getting a good deal when they buy the stuff with their inflated Euros. Other nations such as China continue to pay with Dollars, and in their case they have plenty of them due to the WalMartization of American buying patterns.
To return to my original point, higher oil prices plus a depressed Dollar could be good for the United States — in the long run at least — because those forces might achieve what could not be attained in the face of cheap, under-priced oil and a strong Dollar, namely declining demand for petroleum and related products. It could also have the effect of making alternative energy programs economically feasible, encourage more research on renewable resources, and even (gasp!) get the Congress off its collective butt to authorize positive things such as tax credits for solar, wind, and other alternative energy sources; purchase of economical vehicles; and other tentative steps toward an end to the oil addiction that is strangling our nation.
ADDENDUM — After posting this article I saw this illustration in a recent issue of The Economist. It does such a good job of showing the situation faced by the European Union that I just had to share it with my readers:
Like all good slapstick comedy this has the element of surprise and the pleasant anticipation of the pompous and arrogant about to get their comeuppance. The high-flying Euro and depressed Dollar may make the picture look somewhat as shown, but as you can see the cartoon character depicting European business is about to take a quick trip into the sewers. Having a “weak” dollar might be a pretty good thing for us right now.