Let's talk about a warning on oil prices.... - Belle of the Ranch

Well, howdy there Internet people. It's Belle again. So, today we're going to talk about a warning on oil prices.

This week, the head of the International Energy Agency said something nobody really wanted to hear, but many of us knew deep down. Basically, the worst is yet to come. Executive Director of the International Energy Agency, Fatih Birol said, "Prices are already high, but they are not reflecting the severity of the problem. I agree there is a disconnect, but I think soon we will see they will converge, which is an extremely sensitive issue for the global economy."

He's saying what many economists have been saying for months. The markets are untethered from reality. He's saying there's a disconnect between the severity and the prices in oil. We've seen that disconnect in other markets as well, from the housing market to the stock market to job market. Large segments of the economy are simply running on vibes.

Your clearest indication of this is the way markets are reacting to press releases and statements aren't actually connected to what's happening. A statement from Trump saying Iran is defeated and the war will be over soon can cause the markets to go up. Forget that he said something similar a dozen times over the last month and a half.

The IEA boss also made something else very clear about the impacts. "No country is immune to this. Everybody will be touched." That's important because there are a lot of people who truly believe that the US can drill baby drill its way out of this and that somehow Trump will steer us through. These same people seem completely unaware that Trump steered us into this dire strait, pun intended.

Birol went on to talk about the economic impacts from Trump's war when he spoke of countries downgrading the GDP estimates. “Everybody, one after another, will revise their economic growth expectations. Inflation will get a strong push up in many countries.”

He's not just saying that he expects oil prices to continue to be volatile. He's not just saying he doesn't believe the high prices we've already seen are going to go up. He's saying he believes those events will cause second order effects and that will lead to more inflation and declining GDP growth. Higher inflation, lower growth. We keep coming back to the same old economic term, stagflation.

There are some who are suggesting that it won't be that bad and that the world is better prepared to deal with the risk of an energy shock than it was when an oil crisis set off stagflation in the 1970s and maybe that's the case. But there are two things that seem to keep popping up, even from the more optimistic analysts. First is it's not over. Second, this is the result of Trump's ill-planned move against Iran.

Anyway, it's just a thought. Y'all have a good day.