Tag Archives: Oil price

Away from Oil: A New Approach

By Basil Oberholzer – Two main problems arise from the connections between monetary policy, financial markets and the oil market: the first is financial and economic instability caused by oil price volatility. The second is an environmental problem: a lower oil price inevitably means more oil consumption. This is a threat to the world climate.

Is there a joint answer to these problems? There is. While hitherto existing policy propositions like futures market regulation or a tax on fossil energy face some advantages and disadvantages, they are not able to deal with both the economic instability and the environmental problem at the same time. What is proposed here is a combination of monetary and fiscal policy. Let’s call it the oil price targeting system.

First, to achieve economic stability in the oil market, a stable oil price is needed. Second, to reduce oil consumption, the oil price should be increasing. So, let us imagine that the oil price moves on a stable and continuously rising path in order to fulfill both conditions. To implement this, the oil price has to be determined exogenously. Due to price exogeneity, speculative attacks cannot have any influence on the price and bubbles cannot emerge anymore. The oil price target can be realized by monetary policy by means of purchases and sales of oil futures. Since the central bank has unlimited power to exert demand in the market, it can basically move the oil price wherever it wants. more> https://goo.gl/eUh85j

Tracing Oil’s Hypnosis of Stocks From Wealth Funds to Junk

By Dani Burger, Oliver Renick – Understanding why oil is casting such a spell is more than an academic inquiry.

The reason matters, given how big the moves have been. Almost $1.6 trillion has been erased from U.S. stocks in 2016. If oil is contributing, it’d be nice to know why.

Here are four theories on what’s underpinning the connection.

They range from a straight economic signal to speculation oil’s plunge threatens to lay low everything up to and including the financial system.

Theory: The world’s biggest investors are being forced to sell everything that isn’t nailed down to offset the hit they are taking on their crude holdings. After getting pummeled in commodity trading, investors may be stepping into stocks and unloading. more> http://goo.gl/C05DGw

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The real question about oil: What, exactly, is going to blow up?

By Matt Phillips – Very few people saw that the flap of the butterfly wings that was a Thai baht devaluation (1997) would turn into the serious Wall Street storm represented by Long-Term Capital Management.

So it defies belief that such sharp movements in far more central markets—such as oil and the US dollar—won’t have some sort of unexpected repercussion. more> http://tinyurl.com/m9acktw

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