from the hip

New York Times just reported the oil prices has dropped to under 50 dollars a barrel for the first time in 22 months. NYT writes:

The drop in prices comes as stock and bond markets fell because of fears about the health of the financial system, and a flurry of new indicators showed how badly the economy was faring.

Just as a booming global economy had steadily driven up commodity prices for six years, the current meltdown means the world needs less oil, and is sharply driving down prices.

It is a stunning — and sudden — reversal that has taken aback many experts. Oil futures on the New York Mercantile Exchange fell $3.04 to $50.58 a barrel in morning trading. At one point, crude oil was down $3.71, to $49.91 a barrel. Oil futures have lost more than two-thirds of their value after settling at a peak of about $145 a barrel in July.

Some analysts predict oil could fall to $30 to 40 a barrel as the world economy worsens.

Also, the dollar is for the moment strengthening in international markets.
Another sign of the strength of the oncoming depression?

See also: Times: Shares fall as US jobless adds another 542,000

Biofuels have been hailed as a major solution to the challenge posed by high and rising oil prices. However, lately there have been more and more indications that this may not be the case.

Rising food prices (and rising futures prices on food as well) is one such indication. A rise in demand for food, resulting from among other economic growth in some rising economies, such as China, is another.

Now a World Bank report has been leaked (to the Guardian) that indicates that

biofuels have driven up global food prices by 75 percent, according to the Guardian report, accounting for more than half of the 140 percent jump in price since 2002 of the food examined by the study. The paper claims that the report, completed in April, was not made public in order to avoid embarrassing US President George W. Bush.

This is somewhat at odds with an US analysis recently that came to the conclusion that just 3 percent of the food price increases could be attributed to biofuels. The World Bank numbers seem high, but even so I have more confidence in them.

No doubt we will much more on this issue in the coming month. To me, however, it seems pretty clear that using land that could have been used for food to instead grow biofuels must be wrong. Thus, only to the extent that biofuels can be grown elsewhere, do I think they should be permitted. Also, seems to me, we need new types of plants that are much more effective than the ones currently used.

To me, this is a field that requires much more pondering as well as more research. Far too many politicians around the world have jumped on this train much too fast!

See also: Secret report: biofuel caused food crisis and
Poverty: 260m driven into hunger by push for biofuel

The price of oil has now reached a new record high (in US dollar): 129.31.

Some experts think that a continued belief in even higher oil prices among some American investment banks and hedge funds is a major factor in driving the oil price higher and higher.

Also, the new record high for oil has been cited as a major reason for the drops in the major European stock markets Tuesday.

msnbc/AP writes that:

The June contract for light, sweet crude traded as high as $129.60 on the New York Mercantile Exchange before settling at $129.07, up $2.02 from Monday’s record high. The imminent expiration of that contract, which ended with the close of Tuesday’s trading, created additional volatility in the market.

They see no reason why oil should not hit 140 dollars a barrel.

See also (for a little fun): The Coming Oil Crash (LOL)
An Overview of Oil Prices from DOE
The Oil Price Conspiracy

PS: For the record – I share the view expressed in the first of these postings – about the oil crash – that oil prices will crash. But not in the very near future, I think. And only when the dollar starts to rise against other currencies, and then as a function of the strengthening of the dollar!