Oil is back in the limelight in the economics blogosphere.
Calculated Risk looks at the Department of Energy's Short-Term Energy Outlook, which projects monthly average gas prices to peak at about US$2.35 per gallon in May and WTI prices to remain above US$50 per barrel for the rest of 2005 and 2006. He also looks at US oil imports as a percentage of GDP and notes that for 2004, oil imports were 1.13 percent of GDP, the highest level since 1982.
Barry Ritholtz reviews the forecasts of economists reported in the Wall Street Journal:
None feel that $50 oil will trigger a recession. Thirty-one percent said they feel oil would have to be sustained at $80-89 a barrel to snuff out growth, while 48% believe crude would have to top $90.
Ritholtz himself thinks that "$80 oil grinds the global economy to a dead halt. $50 oil merely slows it down, although it exerts enough drag to eventually cause major problems". He also thinks that "a contraction may be more likely to take place in 2006 than in 2005".
The macroblog also looks at the same WSJ report, as well as a commentary by Caroline Baum at Bloomberg, and -- while concerned about the impact of higher energy prices on the economy -- essentially agrees with her conclusion regarding the appropriate Federal Reserve response to the oil price increase:
If OPEC stopped pumping oil tomorrow, and prices soared to $105 a barrel, does that mean the Fed should lower the funds rate to 1 percent, increase the money supply and put its imprimatur on what would surely be the next stagflation?
Hardly. That would be the outcome if the Fed eased in the face of supply constraints.
How about looser monetary policy in the face of demand- driven higher oil prices? That wouldn't make much sense either, since cutting the funds rate would stimulate already strong demand.
Brad Setser looks at oil from an international finance perspective. He highlights the fact that the increase in oil prices represents "an absolutely enormous transfer of revenue toward the world's oil exporting states". He also says that the increase in oil prices "makes China's growing current account surplus all the more remarkable... If oil fell back somewhat, barring a surge in non-oil imports, China's overall current account surplus would surge".
Setser's readers also leave some interesting comments on his post regarding the potential supply crunch facing the world. One of those comments led me to The Oil Drum, a blog dedicated to -- what else? -- oil issues.