Causes of the Oil Shock of 2007-08

Good piece by Jim Hamilton on the causes of the oil price shock of 2007-08:

But while the question of the possible contribution of speculators and the Fed is a very interesting one, it should not distract us from the broader fact: some degree of significant oil price appreciation during 2007-08 was an inevitable consequence of booming demand and stagnant production. It is worth emphasizing that this is fundamentally a long-run problem, which has been resolved rather spectacularly for the time being by a collapse in the world economy. However, the economic collapse will hopefully prove to be a short-run cure for the problem of excess energy demand. If growth in the newly industrialized countries resumes at its former pace, it would not be too many more years before we find ourselves back in the kind of calculus that was the driving factor behind the problem in the first place. Policy-makers would be wise to focus on real options for addressing those long-run challenges, rather than blame what happened last year entirely on a market aberration.

More here.

Related posts:

  1. Financial Shock and Awe Turns to RTC 2.0
  2. Shock Discovery of Madoff-ian Cynicism
  3. Canadian Culture (Okay, Country) Shock
  4. Consumer Electronics Holiday Sales: 2007 vs 2006
  5. Hedge Funds: November 2007 Worse Than August