The price of oil continued its record rise, and the papers all give major play to stories on how much higher it’ll go.
The Financial Times on page one reports that a Goldman Sachs analyst, “who three years ago correctly predicted a price ‘super-spike’ above $100 a barrel,” says crude could hit $200 in the next six months to two years. The Wall Street Journal on A3 mentions the same report but headlines the analyst’s lower $150 number. The New York Times puts the estimate at the bottom of a Business Day cover story reporting that the government expects gas prices to peak next month at $3.73 a gallon, or twelve cents more than now—though it notes many nongovernment economists predict prices of more than $4 this summer.
Crude oil prices hit a record, settling at nearly $122 a barrel, about double from a year ago and 17 percent higher in real dollars than the previous peak in 1980, the WSJ says. The paper quotes a Federal Reserve economist saying $150-a-barrel oil would reduce U.S. economic output by 1.8 percentage points in the first year.
Why so high? The Journal notes that U.S. oil demand is falling because of the high prices and the slow economy, but that’s being more than matched by demand gains elsewhere, including in China, and supply isn’t growing fast enough. Also:
The world’s safety cushion—the amount of readily available oil that could be pumped in a moment of crisis—is now around two million barrels a day, according to most estimates. That’s just 2.3% of daily demand, and nearly all of the safety cushion is in one country, Saudi Arabia. Everyone else is pretty much pumping all they can, which makes the world vulnerable to political or other shocks.
The WSJ notes that oil is rising even as the dollar rallies, and in a separate A3 story writes that it has politicians fluttering to old standby measures like windfall-profits taxes, OPEC busting, and drilling in the Alaska National Wildlife Refuge—everything but reducing consumption.
Bloomberg drills a bit more into the reason for the most-recent spike—attacks on Nigerian pipelines that have disrupted supplies.
Myanmar’s rice harvest ruined
The Journal says on A1 that the disaster in Myanmar, which has killed at least 22,000 people, will likely worsen hunger across the region by exacerbating the food crisis and sending exorbitant rice prices still higher. The paper says the cyclone hit the harvest in Myanmar, “one of Asia’s richest rice-growing areas.”
While the country has more immediate issues—41,000 people are missing—the long-term effects could deepen its misery.
U.N. relief officials say many rice mills have been destroyed. Distribution networks are in tatters, they say, and large tracts of rice-growing land in the muddy Irrawaddy delta are still under water. Rice plants generally die if they remain submerged for about four days, researchers say.
Is the buck about to rebound?
The NYT says on C1 and the WSJ on C3 say that the dollar may finally be bottoming, as the risk of a big decline against the euro is reduced. The Times reports that the dollar has gained a nickel to $1.55 against the euro in the last two weeks as the Fed signaled it would pause in its aggressive (and inflationary) campaign of interest-rate cuts and officials from some of the world’s major economies started sounding off about shoring up the buck.
But the NYT makes as many arguments for a continuing decline as it does against, noting that investors could dump dollars if they fear a sharp decline and quoting the economist Martin Feldstein saying the huge trade deficit means “the dollar has substantially further to fall.” It also writes that the Bush administration says it is “anathema” for it to intervene in the currency markets to prop up the dollar.
Bloomberg reports this morning that the greenback rose on news that the Kansas City Fed president said the central bank may have to raise interest rates to combat “serious” inflation.
UBS exec detained
The FT scoops on page one that a top UBS executive was briefly picked up by U.S. authorities investigating whether the Swiss bank, which already has enough problems with $38 billion in write-offs and 5,500 job cuts, enabled tax evasion schemes by its clients. The senior banker is being held as a material witness and forced to stay in the U.S. for now.
People close to the situation said the detention was an aggressive tactic and may have been chosen by the authorities to put pressure on UBS and its employees to reveal its business practices. The bank in effect closed its Swiss-based US operation in November but said the move had not followed any specific US regulatory action.