Thursday, August 05, 2004

 

Oil prices and production top economic concerns.


Even with July's employment reports due out tomorrow, record high oil prices sunk the stock market today and may provide impetus for the Fed to hold rates steady at its next policy meeting August 10th. Fair or bad employment reports will virtually guarantee a hold in rates.

Oil prices increased $1.52 per barrel closing at $44.41 because of a ruling by Russia's Justice Ministry on top oil producer Yukos. Yukos owes the Russian government $3.4 billion in taxes and the government has tapped their operating accounts for repayment - essentially freezing production and exports for the company that produces 2% of world supplies.

Some experts have theorized the Russian government wants to increase oil prices and sell the doomed company to Exxon. If that's true, this would be another Enron like manipulation of energy prices. Increased oil demand and concern over production by other OPEC nations including Saudi Arabia, Iraq, Venezuela and Nigeria are pressuring oil prices upward.

If the Fed increases rates August 10, like some experts predict, it may be increasing interest rates based on an economic recovery that's not really there. Energy prices are excluded from inflation reports on consumer prices and the big bite of fuel prices not only impact consumers, but businesses as well.

This analysis brought to you by Strayer University Graduate School.

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