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19 comments on Countdown to €100 Oil: €70 Oil
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19 comments on Countdown to €100 Oil: €70 Oil
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The inflation adjusted WTI on a log scale shows that, despite the feeling that the price of oil has gone ballistic, it actually looks pretty tame for a peaking scenario if you look at it in terms apart from the Fed and the dollar's problems (purple/red line). Incredibly, this chart shows that oil has been and still is trailing inflation for the last 30 years despite peaking production beginning to take hold. This would suggest that, as Simmons says, oil is preposterously cheap.
Excellent article thank you for posting this. The inflation adjusted curve is very valuable. As mentioned in a earlier comment, it would be interesting to repeat the inflation analysis using gold. I think that while oil is amazingly undervalued, we are looking forward to 300 $/barrel oil as a result of devaluation of the dollar. The US economy is now very far into uncharted economic waters. The Euro/Dollar gap caught my eye immediately. Thanks again for this!
With pleasure. But two notes:
1) Adjusting for inflation is a tricky issue, because the definition of the price index itself is tricky business. There are different price indexes, and each have their critics. I hope someone here (say JaP) has the link for an article maybe a year ago, which compared oil price graphs inflation-adjusted with different deflators, the standard CPI and two others -- and the peak of the Second Energy Crisis was reached long ago with the other two deflators.
I intended the graphs inflation-corrected with US CPI vs. Eurozone/German price index as another such comparison: if both indexes and the exchange rate would be 'true to value', the two curves would follow each other.
2) There's an Euro-Dollar gap, yet, one should note that even in Euros, the trend is clearly and inexorably upwards. But I agree that the still undervalued oil should climb significantly above €100/barrel, and that could be $300/barrel or more by that time.
Bill,
Here's a graph I found that goes back to 1970 but is a couple of years old, the ratio now is very roughly ten to one.
http://www.kitco.com/ind/saville/may022006.html