Crude Oil = $145 (The Trichet Oil Rally)
Wow -- this is amazing. It shows no sign of stopping, which of course, it eventually must.
Here's a question -- at what point does ECB Central Bank Chief Trichet realize that every time the ECB hikes rates, it pummels the dollar and sends oil higher?
Let's rename this the Trichet Oil Rally!
Crude Oil, August Futures
via Barcharts.com
>
Previously:
The Costanza Energy Policy: 25 Ways to Drive Oil to $150 (May 2008)
http://bigpicture.typepad.com/comments/2008/05/how-to-drive-oi.html
Related:
Will Trichet drive the world over a cliff?
Ambrose Evans-Pritchard
Telegraph, July 2, 2008, 04:41 PM GMT
http://blogs.telegraph.co.uk/ambrose_evans-pritchard/blog/2008/07/02/will_trichet_drive_the_world_over_a_cliff
Are Trichet's Rate Hikes 1930 All Over Again?
Yves Smith
Naked Capitalism, Jul 3, 2008
http://www.nakedcapitalism.com/2008/07/are-trichets-rate-hikes-1930-all-over.html
Trichet Adopts Greenspan Policy as ECB Attacks Prices
Simon Kennedy
Bloomberg, July 3 2008
http://www.bloomberg.com/apps/news?pid=20601087&sid=aQHtTYGdxKcM&
Trichet fears worst for eurozone inflation
Gary Duncan
Telegraph, July 2, 2008
http://business.timesonline.co.uk/tol/business/economics/article4256486.ece
~~~
Thursday, July 03, 2008 | 06:00 AM | Permalink
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"Here's a question -- at what point does ECB Central Bank Chief Trichet realize that every time the ECB hikes rates, it pummels the dollar and sends oil higher?"
Here's another question - at what point did the fundamentals for the dollar start to go down the drain? When the ECB started raising its rates? Trichet is an ECB banker, the ECB is controlled by Germany just like the Bundesbank used to control Europe's central banks before it and they do one thing: worry about inflation!
While this worry might not be justified at all times and the reaction to it certainly arguable...it is hardly the reason for the death of the dollar!
Instead of inferring Trichet is destroying the dollar because of a pointless rise in the euro rate you might want to think about so many things that you frequently post here: the ridiculous number twisting of the main stream media, misreporting of key figures by the FED and the federal government, twin deficits, ludacris spending, excessive lending, the removal of the glass-steagall act, the total retreat of any supervisory agencies, printing money like there is no tomorrow, artificially low interest rates and of course the NO BANKER GETS LEFT BEHIND bailout philosophy the FED seems to have adapted...
Trichet sinking the dollar? Gimmie a break!
Posted by: Pete | Jul 3, 2008 6:44:18 AM
Pete, are you suggesting that the ECB has no impact on the Euro, the Dollar or Oil? That's absurd.
No one is suggesting that the Dollar doesn't have fundamental problems. Much of the problems with the Greenback (on which I have been Bearish for many years are home grown.
However, at a certain point, you have to recognize that the ECB's action is impacting the Euro/Dollar, and therefore Oil. This is not an opinion, but a simple economic fact.
Posted by: Barry Ritholtz | Jul 3, 2008 6:48:31 AM
May I disagree?
IMHO, the support you're asking for would be short term and therefore useless regarding the deeper causes of the dollar's fall.
Please have a look at Ambac, which is the next weak link in te credit crisis :
http://lacrisepourlesnuls.blogspot.com
Why blame it on Europe when the astronomical American debt and the decadent US industry is the real cause for the fall of the dollar?
Where is the point for blaming BCE not to support a short-term, much moral hazard prone, solidarity with the US government/Fed?
Is this a capitalist country, or would you rather Europe's largesse feed a kind of Keynesian bail out of Ambac?
America drove the whole world economy down the cliff. It is the US structured finance deflating right now.
I suddenly realise may sound totally unamerican right now... maybe it's because I'm Belgian.
FYI Merill Lynch already drove Fortis, my local bank, down the cliff. I'm much more angry with Wall Street thant the BCE.
Sincerely, and still a fan of TBP,
Posted by: michange | Jul 3, 2008 6:56:44 AM
People still don't get it. I was filling up the other day when the fellow across the pump from me remarked "Can you believe these prices?". My answer was a certified "Gas is still cheap".
First I made a quick remark about peak oil as if it were a familiar part of our everyday lexicon. A glazed look came over his face.
Then I mentioned to him that gas prices in Germany are 3 times what we're paying here at the pump. Finally, I mentioned that his SUV was probably not the best option for getting (his obese ass) around town. The conversation ended abruptly.
I try to be a good neighbour, but I can't help but throw sarcasm into the equation when the average Joe insists on getting his continuing education from patronizing TV news broadcasts that consistently get the big story wrong.
There's a geoligical reason why oil prices are where they are today. It's time to get our collective brains off pop-culture and into gear before we turn the rest of the planet into a world class Easter Island.
Posted by: theyieldcurve | Jul 3, 2008 6:56:52 AM
It's China's fault, it's arabs' fault, it's speculators' fault and it's ECB's fault. The finger is pointing pretty swiftly.
Be blessed The innocents who use 25% of world oil.
By the way, doesn't Trichet fight the oil price inflation pretty well? Shouldn't Bernanke join him?
Posted by: Aurora Borealis | Jul 3, 2008 6:59:33 AM
Its not just a weaker dollar causing higher oil prices, but also higher oil prices weakening the dollar. As long as the US imports the majority of its crude and petrodollars are being spent on skyscrapers and palm shaped islands then the dollar will continue to weaken regardless of the ECB. The ECB is just pouring gas on the fire.
Posted by: Turley Muller | Jul 3, 2008 7:02:20 AM
I told you BR that Trichet and the Frenchies hate the Bushies. They never forgot old Rummies "Old Europe" comments. Here is somma good news. The Europeans will decrease rates after the election, after Bush is and his stupid policies are utterly humiliated. Monetary poolicy and economic policy decisions are never made in a political vacuum. They will pay, the worst President in history.....
The Dollar Sheik
Posted by: John_doe | Jul 3, 2008 7:02:29 AM
Exactly!
Oil is only rallying in USD, it is actually down in EUR this week, so thanks Trichet!
(Obviously writing from Europe)
Posted by: JustSo | Jul 3, 2008 7:05:18 AM
No one is suggesting that the Dollar doesn't have fundamental problems. Much of the problems with the Greenback (on which I have been Bearish for many years are home grown.
However, at a certain point, you have to recognize that the ECB's action is impacting the Euro/Dollar, and therefore Oil. This is not an opinion, but a simple economic fact.
Barry, isn't it possible that on an irrational, emotional level, the French and Germans are enjoying the triumph of the Euro over the dollar?
Posted by: David Davenport | Jul 3, 2008 7:07:30 AM
I'm not an expert, but wouldn't a leveraged rise in oil price because of currency fluctuations be speculation and therefore temporary?
And wouldn't rising interest rates slow down the economy lowering oil consumption AND prices in the longer term?
Posted by: Tom | Jul 3, 2008 7:07:51 AM
Years of recklessness at the fed and at banks got us where we are. Unfortunately, deflation is what is needed to fix our currency. Interest rates are currently way negative (~-7%?) and yet credit expansion is flat. Painful as deflation may be positive real interest rates are the answer. The Europeans inflated their currency plenty over the last few years and are now paying the price. Stop blaming the Euros for trying to put their house in order.
Posted by: john | Jul 3, 2008 7:08:03 AM
The thing is the ECB have a very strong bias towards controlling inflation at the expense of everything else. They have a lack of flexibility with current cost push factors.
Posted by: Tejvan Pettinger | Jul 3, 2008 7:12:45 AM
it would be brilliant move to cut a little today.
but trichet is a bitch and got no balls for it
Posted by: rikardo kurvio | Jul 3, 2008 7:13:03 AM
BR asked
Here's a question -- at what point does ECB Central Bank Chief Trichet realize that every time the ECB hikes rates, it pummels the dollar and sends oil higher?
reply: Here's a better one. Please explain how a 1% fall the dollar causes far more than a 1% rise in the price of oil. [BR: Psychology]Oil is well over 50% more than recent memory, but the dollar is nowhere near 50% weaker. Let me guess, Chinese on the other side of the world, slap fights in Nigeria, and everything BUT long only oil investments????? If I'm wrong, then expose me, but do so with facts, not peak oil hysteria.
Posted by: cinefoz | Jul 3, 2008 7:14:01 AM
What happens when all the foreign dept flowing into the US treasury starts to slow or reverse...? I've got that sinking feeling.
Posted by: Simon | Jul 3, 2008 7:14:08 AM
theyieldcurve:
Exactly, the gas is still absurdly cheap in th e USA. With new environmental taxes price up and consumption down. Ultimately the producer price would come down. The taxes would also serve as incentive to new energy sources and R&D. Now the US autoindustries go bankrupt with their Hummers. What next? Personal Panzers?
Posted by: Aurora Borealis | Jul 3, 2008 7:17:30 AM
"at what point does ECB Central Bank Chief Trichet realize that every time the ECB hikes rates, it pummels the dollar and sends oil higher? "
Here's a question: if he's paying for oil in Euros, why should he care?
Posted by: Andrew Foland | Jul 3, 2008 7:29:16 AM
MARKETWATCH: A rising chorus of political criticism isn't likely to deter Jean-Claude Trichet and fellow members of the European Central Bank's rate-setting governing council from following through with an all-but-promised quarter-percentage-point boost in the euro-zone's key interest rate on Thursday.
If they hike, the ECB will be resuming a series of rate hikes after a 13-month pause. In that time, inflation pressures have mounted, with annual consumer inflation hitting 4% in June, more than double the ECB's target of just less than 2%.
The ECB's sole mandate, however, is to preserve price stability.
Such criticisms are nothing new from Sarkozy or other French officials. They're likely to grow louder after France on Monday began its six-month term as president of the European Union.
But a similar tone was also struck by German Finance Minister Peer Steinbrueck, who was quoted over the weekend as warning that a hike could exacerbate a slowdown.
Economists say that while protestations from politicians are to be expected as the economic outlook worsens, the ECB and Trichet have earned reputations for jealously guarding the central bank's independence.
Also, German Bundesbank President Axel Weber and Bank of France Gov. Christian Noyer, who are also members of the ECB's governing councils, are allies of Trichet and among the panel's most hawkish members, noted Broux.
Posted by: William Watts | Jul 3, 2008 7:29:42 AM
wow...15 comments up from 0!
i don't know where to start here but as regards the initial response to my comment: of course there is an impact - this is out of the question! but you're trichet question made it sound like he was somehow fighting european inflation while missing the point that he is sending the dollar into elysium (and subsequently the price of oil along with it). it sounded like an implication that the dollar could somehow be resuced (which is the real absurdity here) if the ECB were to act 'accordingly' and not rise rates.
Let me reiterate this point, it is my conviction based on every and any piece of information that i have stumbled across over the last year that the dollar is dying. one major reason for that is the printing of more dollars (way to many dollars, in fact the current problem is that the world has passed the point of being able to sustain anymore dollars!) and this can only be countered by rising the price of these dollars - the interest rate.
the fact of the matter is that the only reason oil and other commodities are sky rocketing is simply the need by all kinds of actors in the market to secure against the rapidly diminishing dollar which is simply going to go to zero.
it just seemed surreal to me that given the size of the coming CDS crash (which is how many times the size of the suprime mortgage mess?) and the bond crash after it (which is how many times the size of the CDS market?) how would any rate decision by the ECB change the fact that you cannot recover from this...unfortunately Elvis has left the building...and as long as commodities like oil are priced in dollars (we've seen what happens if someone attempts to price oil in EUROs in the case of iraq) it will continue to go up.
Posted by: pete | Jul 3, 2008 7:31:06 AM
I can't believe the people spouting "gas is cheap" and citing Europe as an example. Gas is expensive in Europe because the gov'ts over there tax the hell out of it.
And the theory that we should do likewise, so as to destroy demand, is equally ridiculous. Perhaps, instead, if the US gov't got their collective heads out of their asses and articulated a viable engery policy, that would move the needle.
Instead, we have Bush and Paulson who keep telling us that "the dollar is strong" and "we support a strong dollar," but take actions that do the opposite.
Posted by: Mr. Obvious | Jul 3, 2008 7:32:31 AM
Oh Barry,
the price of crude is rising for at least three years now. What did poor Trichet do get this going?
Prices will go down, if there is enough demand destruction or if the dollar is getting stronger. Since Bernanke and the FED are doing nothing, why should Trichet and the ECB?
Europe is not the root of the problem, so it hardly seems fair to blame them for protecting their currency against the rising tide.
Posted by: Gregor Neumann | Jul 3, 2008 7:32:47 AM
The question may not be whether he realizes he is pushing the dollar down, but rather if he cares.
Posted by: Zach | Jul 3, 2008 7:42:44 AM
Barry, your blog has been on my reading list for a long time. In fact, it was a big motivator for acquiring a super-automatic espresso maker for work (and in turn making mornings @ the office worth waking up to).
But, frankly, this latest post just smacks of missing the big picture. I feel you're seriously stuck in financial pop-culture land on this one. There's a lot more to some of our problems than just the fiscal component. To be blunt, financial dickering and posturing between the ECB and the Fed are part of the problem, not part of the solution.
Perhaps it's time to start throwing in those occasional astronomical factoids again to put things back into perspective.
~~~
BR: Here's the big picture on Oil from 2 months ago:
The Costanza Energy Policy: 25 Ways to Drive Oil to $150
Context, people! This was a minor point that Trichet is impacting oil . . .
Posted by: theyieldcurve | Jul 3, 2008 7:43:43 AM
Mr. Obvious - Europe is a pretty good example of a culture with a better handle on conservation and solutions. We could learn something from them.
Any energy policy we come up with will be pretty grim if it honestly takes in the gravity of our predicament. Europe is slowly but surely adopting that path.
We have two short-term choices: destroy demand...or destroy supply. Pick one.
Posted by: theyieldcurve | Jul 3, 2008 7:50:57 AM
Barry, The President told me that all we had to do was drill off of Florida and our gas prices would go down. Of course didn't he also think that invading Iraq would lower the prices? Sorry for the snark but have you ever thought about writing a column for Bloomberg News?
Posted by: JL | Jul 3, 2008 7:51:27 AM
