Comments on: Will the Bank grasp the opportunity of falling petrol prices to cut interest rates?

By: Matthew

Matthew — Sun, 03 Aug 2008 12:13:50 +0000

Thanks for replying again. But doesn’t purchase of a long futures contract also require sale of that futures contract – so how does it create extra demand for the commodity?

By: Matthew

Matthew — Fri, 25 Jul 2008 14:10:37 +0000

Sorry I’m not trying to caricature your argument. But I’m not sure the pension fund argument works either. The pension funds are buying futures, mainly on Nymex. Someone else is going short these futures and no physical oil is changing hands. I find it hard to see how that influences prices, although it certainly seems like it does.

Reply: It all creates extra demand for the commmodity – too many buyers chasing too few sellers causes rising prices

By: Matthew

Matthew — Fri, 25 Jul 2008 12:11:31 +0000

John – I asked you before about how you thought speculation increased prices in the oil market when it is mainly done through futures, which of course have both a long and short position and very rarely involve any change in the physical market.

You suggested, I think, that the mechanism you thought was happening was the individuals were driving around with more petrol than they otherwise would, and hence there was a physical response.

If that is the correct characterisation of your views (and if not please correct me) I’m not sure the numbers stack up. If we assume there are 35m cars and small vans in Britain, and each has a 10 gallon fuel tank, that’s 350m gallons of capacity, which is about 10m barrels of oil. So if people were storing 20% more, that would only be about 1 days consumption, which if true globally surely is not enough to make oil so much more expensive.

Reply: No, that is a caricature of what I said. I pointed out that many people were preempting price rises by hoarding, buying forward etc – and many were putting commodity investment into their pension funds.

By: Simon

Simon — Wed, 23 Jul 2008 22:05:25 +0000

Surely anyone who participates in any market is a speculator. It’s not just win win or we’d all be doing it. People loose money as well.

By: mikestallard

mikestallard — Tue, 22 Jul 2008 16:56:20 +0000

Why doesn’t the government have the sense to make some savage cuts in expenditure so that it would have some billions to play with?
Reducing the price of lorries’ diesel would be a very good start.
Slashing the spiralling costs of local government might be another.

By: Matthew Reynolds

Matthew Reynolds — Tue, 22 Jul 2008 11:25:22 +0000

Cutting into the QUANGO state to fund slashing the PSBR while using the cash windfall from VAT & North Sea Oil tax from the price of a barrel being higher than a year ago to fund a 15p a litre fuel duty reduction would both limit the money supply while reducing transport costs . That would allow the fall in inflation needed to bring down interest rates and thus avert economic meltdown. Boosting the savings ratio by making ISA’s more generous would help in this regard too . Reducing civil service numbers & government procurement costs while wasting less on consultants might we wise as smaller government equals prosperity – just look at Eire !

By: Neil Craig

Neil Craig — Tue, 22 Jul 2008 09:16:11 +0000

I suspect George W is responsible for this by (A) deciding that the US should open up some of its new fields which the “environmentalists” have been keeping in the ground for decades & (B) sounding a little less like he will attack Iran thus closing off all oil from the Gulf.

By: anon

anon — Tue, 22 Jul 2008 08:46:32 +0000

What do you make of Mish’s article where he says, “Deflationary Hurricanes In US And UK

I agree Blanchflower having previously stated Deflationary Hurricanes to Hit U.S. and U.K. In fact, I believe the US is in deflation now.

However, Blanchflower is mistaken if he thinks lower rates are going to be some kind of magic bullet. One look at the US should be proof enough.”

Surely trashing the pound by lowering interest rates will simply import inflation?