President Bush has appealed to oil-producing countries to increase the flow of oil to put a damper on oil prices. He has been repeatedly rebuffed, however, as oil ministers from the Persian Gulf charge that rising oil prices result more from American economic mismanagement than from constricted supplies of oil.
Many oil experts agree. According to Daniel Yergin, who runs Cambridge Energy Research Associates, the price of oil for Europeans is still roughly what it was last year. What is causing oil prices to surge, he said, is low American interest rates that are being pushed down in hopes of avoiding a recession. While global demand has indeed grown, those low rates have also spurred an investor rush to commodities, especially oil contracts.
“There’s a new player in the oil market — the Federal Reserve,” Mr. Yergin said. “Not because it wants to push up oil prices, but as a consequence of its lowering interest rates to stimulate the U.S. economy.”
This is shocking news to me. On the other hand, I’ve noticed increased prices on lots of imports. The natural freefall of prices of high tech gadgets is no longer occurring; even clothes are getting more expensive. The detail about oil prices raises real questions about whether Bush’s pseudo-rationalization of going to war ever made any macroeconomic sense.