Ok. Oil. Exxon Mobil reported a second-quarter profit of nearly $12 billion — a number that works out (as many did) to about $39 for every man, woman and child in America; $90,000 a minute etc.
Mark Thoma has a think about the future price of gasoline for us. The punch line:
If past global expansions are a guide, global demand will recede only gradually. This is a direct implication of the model underlying this analysis. This suggests that US gasoline prices will remain high for the time being. Barring a major economic collapse in emerging Asia, prices will stabilise only as the world economy learns to economise on the use of oil and gasoline and as the supply of crude oil expands. Both corrective forces will take time to gain momentum.
As an investor however I believe that there is a definite skew in the probability distribution. Who ever heard of an extra 5 million barrels per day unexpectedly hitting the market? Yet, there is a distinct possibility of that much being unexpectedly withdrawn. Better to own the upper tail than the lower.
Brad Setser revisits the Gulf-inflation story — single digit interest rates, double digit inflation.
I’d like to see more game theory applied to the oil price analysis. If they did peg their currencies to price, the Gulf could be the world’s ultimate monetary authority. They can open the spigots whenever world growth flags below a targeted rate, and pull back when things are running a little hot… I’d rather own a currency based on oil than one based on gold.
Alternatively, they could pull back whenever there is talk of carbon caps, open up when it looks like alternative energy is getting too much interest and investment…
If I were advising them, here’s my spin: Gulf states announce that they are voluntarily limiting the production and export of petroleum in order to contain global warming; and coincidentally conserving global oil resources for future generations… Home run.