Why did Friday’s [June 6] bad employment report help push oil prices even higher?
A sagging economy also contributes to the deterioration of the wealth effect. The commodity markets feel policy makers’ response to the weak employment report will be to contemplate more fiscal stimuli while having an increased aversion to raising interest rates. After the technology bubble popped, easy monetary policies were able to maintain consumers’ feeling of wealth by fueling the residential real estate boom. The easy money experiment may be nearing its end as the current recipients of the newly created money (commodities) are now contributing to the reverse wealth effect. Are there fundamental forces behind oil’s recent move? Yes. In many of the world’s major oil fields it is becoming increasingly difficult and more expensive to get oil out of the ground. Much of the world’s low-hanging fruit has already been snatched from the oil patch. According to the Wall Street Journal, OPEC’s spare capacity is “unusually thin – around 2 million barrels a day in a market of 86 million barre
