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#1 Tom Rexton

Tom Rexton

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Posted 28 June 2005 - 09:08 PM

Mr. Salsman,

What are the primary causes of the steep rise in oil prices over the last two years? I've read many articles on oil prices and list the following as the several candidates:

1. Sharp rise in demand (from fast economic growth)
2. Little spare capacity of refineries*
3. Little production capacity*
4. Fall of US dollar's value in terms of other currencies

*due to environmental restrictions and other gov't regulations

Also, what can we expect the price of oil to be over the next year or two? Will it continue to rise sharply or fall?
Thomas James Rexton

#2 Stephen Speicher

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Posted 17 July 2005 - 07:20 PM

This is Richard M. Salsman's reply to the question posed by Tom Rexton.

The primary cause of the rise in the DOLLAR-PRICE OF OIL in recent years has been the steady FALL in the purchasing power of the DOLLAR. When each dollar purchases less, more dollars must exchange against any tangible good - like a barrel of oil. See also an ounce of gold today: at $400/ounce, it is more than 50% higher than it was in 1999 ($250/ounce). The second major cause of the rising oil price is the U.S. botched "war" effort; Iraq has the second largest oil reserves in the world, but the U.S. has allowed the Iraqi fields to be perpetually bombed and sabotaged and the U.S. has refused to take any more oil out of Iraq because it's aim is to be altruistic, not "greedy." A rising demand for oil has not played a large role in the oil-price rise, because oil output, though less than it should be, has risen with demand.  Knowing what I believe to be the main causes of the rising oil price, I'll leave it to you to infer what I'd say about its likely future direction.

Richard M. Salsman, CFA
President & Chief Market Strategist
InterMarket Forecasting, Inc.
1777 Fordham Boulevard - Suite 202-4
Chapel Hill, North Carolina  27514

EMAIL: RMSalsman@intermarketforecasting.com
WEB: intermarketforecasting.com

IFI is an investment research and forecasting firm that quantifies market-price indicators to guide the asset allocation decisions and trading strategies of pension plans, asset managers, financial institutions and hedge funds.






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