A New Oil Shock!
Linda says:
You would have thought that demand for oil would have fallen with the way prices are heading higher and higher. Whilst there is evidence that demand is falling in the United States, in the form of a general economic slowdown, consumption is still rising rapidly in many other areas.
In China the cost of fuel is subsidized so there is less pressure from price rises. The oil rich countries of the Middle East have cheap oil as well, so traffic jams in Dubai are not going to be curtailed by a rising world price. The falling US dollar is also cushioning some countries from the full rise in the US dollar price.
The price is also being driven higher by speculation and the continual instability in the Middle East. The threat of some form of confrontation involving Iran does remain, certainly until Bush leaves office. Knowing what is really happening there, in the midst of bluff and counter bluff is impossible.
However, the current high prices will cause slowing of the world economy in oil importing countries. The governor of the European Central Bank, M Trichet, has admitted as much when he has cautioned that further turmoil of financial markets could occur. The rise in oil will also dampen many economies and worsen inflation problems. If inflation goes higher, interest rates are likely to follow.
