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Monday, June 27, 2005

Oil Pushes Through $60 a Barrel

The price of crude leaped to a new high this morning (Monday), breaking through the psychologically important US$60 a barrel threshold as concerns mounted that supply would not meet demand, especially in the United States. This is leading some (including the FT) to ask whether push is coming to shove on the cost side (equally it won't exactly be good news for consumption).

Shares in energy-intensive companies such as manufacturing and transport were hardest hit. FedEx, for example, the US delivery group that has been a leading beneficiary of booming global trade, broke its winning streak by warning that this quarter's earnings would be hit by jet fuel costs despite an automatic surcharge for customers.

And the metals industry, which had been enjoying its best growth for years, is now squeezed between the high cost of energy-related inputs such as electricity and coal and slowing demand from leading customers.

1 comment:

sagwalla said...

No, it doesn't sound good, does it? OPEC is pretty helpless as no one seems to want the marginal Saudi crude, but their last communique makes it clear they understand the importance of the right price to maintain demand.

I expect that the high price will hit China, as inefficient users, pretty hard, so if that can take the wind out of their aggressive growth, then demand might start to moderate and keep price under control. The scary point is 4Q05, when everyone seems to think refining won't be able to keep up with demand. I actually think they'll be okay and that this is all rather overblown at present.