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The Impact of $200 Oil

by CalculatedRisk

The LA Times has a story on the impact of $200 oil: Envisioning a world of $200-a-barrel oil. The story discusses some possible impacts of higher oil prices on consumer behavior, transportation, trade and the workplace (more telecommuting, fewer work days, etc.)

On housing:

As for the ... beleaguered housing market, prices are falling faster in areas requiring long commutes -- such as Lancaster and Palmdale -- than in neighborhoods closer to job centers.

Sky-high gas prices "would basically reorient society to where proximity would be more valuable," said Tom Gilligan, finance professor at USC.

For trade:

"To put things in perspective, today's extra shipping cost from East Asia is the equivalent of imposing a 9% tariff on East Asian goods entering North America," said Rubin of CIBC World Markets. "At $200 per barrel, the tariff equivalent rate will rise to 15%."

All the same arguments have been made for $140 oil.

We are already witnessing the decline of the exurban lifestyle. And on trade, Professor Krugman recently noted: The world gets bigger.

For the U.S. auto industry, sales are already close to what one analyst called "Armageddon. Doomsday."

So the impacts discussed in the LA Times story are already happening. $200 per barrel oil will just makes them more severe.

 

 

Rogers Tells Investors Not to `Give Up' on China (Update3)

By Zhao Yidi

June 28 (Bloomberg) -- Jim Rogers, who in April 2006 correctly predicted oil would reach $100 a barrel and gold $1,000 an ounce, told investors not to ``give up'' on Chinese shares after the country's stock index fell almost 50 percent this year.

``Start buying when others say `never again','' Rogers, 65, said today at an investor conference in Nanjing. There is ``much money to be made'' from investments in Chinese stocks, he said.

China's CSI 300 Index has slumped 52 percent from its Oct. 16 peak on concern government measures to curb consumer prices will hurt earnings growth. Rogers, who first started buying Chinese stocks in 1999, said he hasn't sold any of his holdings.

``It's still a growth story in China,'' said Andrew Sullivan, a sales trader at Mainfirst Securities Hong Kong Ltd. ``It still has a good manufacturing industry.''

China's economy expanded 10.6 percent in the first quarter even as export growth cooled and industrial companies' profit growth slowed as oil and gas costs surged. Chinese stocks slumped yesterday on speculation the government will increase interest rates to help tame inflation.

Rogers told Chinese investors that the current correction is ``the way the market works,'' and they shouldn't be a ``market timer'' trying to figure out when is the bottom. ``You should get in at a time like now,'' Rogers said. ``I'm starting to think about buying again.'' He said he'd be ``investing in China for the rest of the century.''

About 200 people -- a full house -- paid as much as 50,000 yuan ($7,300) to hear Rogers speak at the two-hour event. The cheapest ticket was 3,800 yuan. Some approached him for his autograph and photos after the speech.

`Learn About Commodities'

Investors should also ``learn about commodities,'' Rogers said. Oil prices, which reached a record in New York trading yesterday, will go higher, he said.

Crude oil for August delivery rose 57 cents, or 0.4 percent, to a record close of $140.21 a barrel yesterday on the New York Mercantile Exchange, extending its gain this year to 46 percent.

The price of oil will keep rising, ``unless someone finds a major oil field very quickly, in accessible areas,'' Rogers told Chinese investors. ``The oil trend is still high even though the U.S. is trying to curb oil speculation,'' said Sullivan.

Rogers told investors to ``stay away from'' the dollar. The U.S. currency is within 2 percent of a record low against the euro reached in April as the Federal Reserve has cut interest rates to stave off an economic recession.

U.S. stocks ``are going to go down,'' Rogers said. The Dow Jones Industrial Average fell 0.9 percent yesterday, extending the decline for the 30-stock measure to 10 percent this month, the worst June since 1930.

The U.S. may be in its ``worst recession since World War II,'' Rogers said, adding that the subprime mortgage crisis in the world's biggest economy ``has many years to go.''

To contact the reporter on this story: Zhao Yidi in Beijing at at