Michael Pascoe writes:

The great and totally understandable
journalistic desire to see the worst in all situations, no matter how
contradictory the evidence, is delightfully demonstrated by the many headless
chook stories running in all media about oil prices.

The SMH
lead business section story encapsulates it best: “Oil at $US75, inflation feared” shouts the headline,
“Shopkeepers brace for spending cuts” warns the strapper beneath it.

D’oh. Anyone notice the contradiction, the
Herman Kahn “hot snow load”? When shopkeepers are fearing their customers are
cutting spending, they don’t put up prices. Their efforts to desperately tempt
consumers to keep spending prevent inflation. There’s no pricing power in a
contracting market.

But one shouldn’t just bag one paper about
it – the Federal Treasurer and Prime Minister have been out and about kicking
the petrol can as well.

There’s been regular debate about whether
the RBA sees higher oil prices as an inflation threat or as a defacto fiscal
tightening (higher petrol prices work as a tax increase, except the money goes
to oil producers instead of your government).

The answer is a little bit of both in
theory, but after several years of rising oil prices without inflation taking
off, it should be obvious it’s much more of the latter. If anything, the
economic dampening effect of more expensive fuel means another interest rate
rise is less likely. The stimulatory impact of Peter Costello’s tax cuts next
month has already been neutered by George Bush’s Iran
nuke-rattling, Nigerian anarchy and massive speculation by the burgeoning
commodity funds.

What’s a touch bemusing is that OPEC
doesn’t like it either. CNN reports the oil producers’ told a world energy conference in Qatar
yesterday that they want a lower oil price, but can’t achieve it as the factors
driving the price higher are beyond their control.

Producers fear a disastrous
collapse in oil demand.

But there are splits over
how to pull prices away from their inflation-adjusted high of above $80,
touched in 1980, the year after the Iranian revolution.

Consumers want more oil
while producers want to be sure investing in new fields will pay off. Both
sides criticize major oil firms for failing to build new refineries to keep
pace with booming demand for motor fuels.

“Everyone is
protecting their own interests. Nothing is going to change at all,” said
energy analyst John Hall.

OPEC itself meets tonight, but it’s
unlikely to increase its official production level as that’s not the problem –
there’s no shortage of oil right now. Too bad that doesn’t make a nice scary
headline that might help sell papers.

Peter Fray

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