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Mises Economics Blog

The Big-Oil Administration Achieves its Goal

March 11, 2008 11:26 AM by Mark Thornton | Other posts by Mark Thornton | Comments (20)

Comments (20)

  • coyote

  • I am quite supportive of your work at Mises, but could an institution named after an economist please show long term price history using real vs. nominal dollars, or else explain the philosophical reason for not doing so.

  • Published: March 11, 2008 12:04 PM

  • jeffrey

  • The term "real" can be misleading. It's not as if actual prices are fake. Making the data "real" means introducing a second level of aggregation that reveals some things and disguises others. For example, in "real" terms, the great German inflation didn't happen at all. There is a role for adjusting for inflation but it is not required in order to see reality.

    This chart is provided from the Fed of St. Louis and it is the standard chart for looking at oil prices. If you want to see them in real terms, you can see that too, not from the Fed but from other sites. You might also change the dating, or look at annualized percentage change or compounded annual change or continuously compounded rate of change or a natural log of dollars per barrel.

    Or you can just post prices. That's what Mark did.

  • Published: March 11, 2008 1:35 PM

  • Fed Hater.

  • The saddest part is that I have seen stories all over the place on the sudden jump in petroleum prices buy have yet to see a single one in the print and TV MSM give the correct cause: The dilution of the value of the currency by the Federal Anti-Reserve.

    If the Federal Reserve would RESERVE the value of the currency by simply stopping the creation of more of it, then the value of the dollar would rise and the price of petroleum, other energy and food would come down under the relentless progress of technology.

    The MSM is afraid to knock the reputation of the only body that can impose taxes and confiscate wealth at its whim.

  • Published: March 11, 2008 1:51 PM

  • Ron

  • One thing that is interesting to look at is the price of oil in US$ graphed against the price of gold in US$. I'll see if I can find a graph like that, but I believe they've been almost identical for, like, ever.

  • Published: March 11, 2008 1:59 PM

  • tom

  • That's a good one Jeff. Let's deflate inflation by inflation. You might just get a horizontal line.

    So, inflation doesn't throw a veil of illusion of economic reality? Mark can post what ever graph he wants, but I don't see why you should become so defensive over a simple request of seeing a graph in real terms.

  • Published: March 11, 2008 2:06 PM

  • Mark Thornton

  • The real price has been on Mises.org here:


    http://mises.org/story/1892


    It doesn't change the overall story. Adjusted for price level changes, oil is at the highest price in recent history.

  • Published: March 11, 2008 2:07 PM

  • tom

  • Thanks for the link, Mark.

  • Published: March 11, 2008 2:34 PM

  • Jake
  • One thing that is interesting to look at is the price of oil in US$ graphed against the price of gold in US$. I'll see if I can find a graph like that, but I believe they've been almost identical for, like, ever.

    Ron,

    An interesting graph is provided by James Turk from Goldmoney.

    It shows that if you were paying for oil with gold, the oil price is relatively stable. You can view it here: http://freethemarketman.wordpress.com/2008/03/06/an-overview-of-golds-supply-demand/

    I don't know if that is excactly what you're looking for. If you've seen it before, then nevermind. :-)

  • Published: March 11, 2008 2:57 PM

  • Jake
  • One thing that is interesting to look at is the price of oil in US$ graphed against the price of gold in US$. I'll see if I can find a graph like that, but I believe they've been almost identical for, like, ever.

    Ron,

    An interesting graph is provided by James Turk from Goldmoney.

    It shows that if you were paying for oil with gold, the oil price is relatively stable. You can view it here: http://freethemarketman.wordpress.com/2008/03/06/an-overview-of-golds-supply-demand/

    I don't know if that is excactly what you're looking for. If you've seen it before, then nevermind. :-)

  • Published: March 11, 2008 2:57 PM

  • George Gaskell

  • Since when did raw data become misleading?

    I am reminded of the old saw: Who are you going to believe -- me or your lying eyes?

  • Published: March 11, 2008 3:52 PM

  • Ball

  • What is misleading is:

    1) This is a Big-Oil administration (as opposed to a Big-Corp. regime which has been in power since the Civil War)

    2) This "Big-Oil Administration" had an explicit goal of higher nominal crude prices. I find this implication not only unsubstantiated, but contrary to common sense. Surely, they would want lower costs and higher pump prices, which is accomplished by restricting refining and lower crude prices.

    3) Any attack on the ruling class ought to be made explicit. Are we attacking economic policies or corruption here? It looks like a cheap shot better published in the NY Post or similar rag.

  • Published: March 11, 2008 4:39 PM

  • Ben

  • It also ignores the impact of the OPEC government cartel, which is completely beyond the control of the US administration (regardless of what Cheney may believe). Wholesale crude demand is doubtless more inelastic than that of refined petroleum at the pump, so the benefit to oil companies of relatively high, relatively volatile nominal spot oil prices in the long term is questionable.

  • Published: March 11, 2008 6:56 PM

  • Brent

  • "Deflating" nominal numbers really can mislead more than people realize. The whole process starts out with finding the "deflator" -- i.e., adding up mystical "baskets of goods" -- and it ends, in this case, by adjusting downward the dollar-price of oil, in spite of oil being a major component of "the basket" used to find the deflator. Talk about bias.

  • Published: March 11, 2008 7:23 PM

  • Alvaro

  • I think there are few people in the MSM with the mental toolset required to understand what the Fed does to the dollar.

  • Published: March 11, 2008 10:23 PM

  • MPABlazer

  • Big Oil (I work for a little oil company) does most certainly gain from higher prices. Take only the example of Royal Dutch Shell/Saudi Aramco. This conglomerated partnership prices oil at the spot. Saudi Aramco charges Shell the spot price minus a contracted %. So, as the price of oil goes up, Shell makes more. It is no different than the credit card companies. As gas prices go up (or any other retail good) the fees generated from the % goes up in real terms.

    Let alone where Big Oil owns resource rights to the wells themselves with only simple royalties paid (as in the Alabama - Exxon case).

  • Published: March 11, 2008 11:09 PM

  • Jonathan

  • Speaking of prices in terms of gold, I read recently that US average house price is far lower in gold ounces than historical mean...

  • Published: March 12, 2008 2:46 AM

  • newson

  • to be fair, i think the administration naively hoped that the iraq escapade would deliver lower oil prices.
    prominent iraq war supporter rupert murdoch exemplified this panglossian view in february 2003:

    "The greatest thing to come out of this for the world economy, if you could put it that way, would be $20 a barrel for oil. That's bigger than any tax cut in the any country."

    the us' ability to manipulate crude prices is minimal, and indeed the administration could have done very little in augmenting refining capacity, given long lag times in construction and the inevitable "stakeholder" obstructionist tactics.

    bush - incompetent? yes! desirous of high pump prices? sounds like drawing a very long bow to me.

  • Published: March 12, 2008 10:06 AM

  • pomofo

  • To coyote:

    These charts and data are not created or compiled by the Mises Institute. They are created by the St. Louis Fed, as you can see in the footnote, and are available at: http://research.stlouisfed.org/fred2/ Your questions should be addressed to the researchers at the St. Louis Fed, not to the folks who run this site.

  • Published: March 12, 2008 10:51 AM

  • tom

  • pomofo,

    Deflating a series is not that difficult to do, although some people may not know how to do it. The people who run this site should be capable of doing so if inclined and Mark has already provided the link.

  • Published: March 12, 2008 11:22 AM

  • SooperDave

  • Here is an oil chart with the inverse of the dollar.

    http://img247.imageshack.us/img247/2024/oildollarmx6.png

    This chart is oil divided by gold to show the relationship between the two.

    http://img247.imageshack.us/img247/8356/oilgoldah6.png

    The charts are of different durations.

  • Published: March 12, 2008 5:47 PM

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