Tuesday, June 17, 2008

Oil At $100 A Barrel--Maybe Not So Bad This Time

I see no reason that oil is so expensive but it is. And that is a fact, for now. But, as screwed up as some people think the world is right now, it could be worse. It could be the 1970's when the whole engine fell off the track. Here is an article from the London Times that gives some insight as to why now is different.

It's human nature to imbue inert numbers with profound significance. We celebrate 18th birthdays and 25th anniversaries as though doing so might pause, even for a moment, the merciless ticking away of life's clock. We build buildings without 13th floors. In Asia they will go to extreme lengths to avoid any contact with the number 4. The Bible can be read like an extended number puzzle: twelve tribes, ten commandments, seven plagues, four horsemen.

In financial markets this tendency has fascinated economists. A certain number in an index or a price for a traded instrument is said to be “psychologically important”. It is believed that traders behave differently when they near or cross some round number - a $2 pound, 10,000 on the Dow Jones industrial average.

It seems implausible at first sight that hard-bitten capitalists would be victim to such unreason. Yet the idea that particular numbers matter persists in the minds of some people in the markets, which is enough to make it a kind of reality, I suppose. Sometimes, it seems, like an old horse that whinnies and retreats from some unseen spectral object, markets really do think a particular number might be haunted.

One of those magic numbers is $100 for a barrel of oil. On Wednesday, for the first time, contracts for future delivery on the New York Mercantile Exchange finally recorded that figure.