Bastille Day Oil Price Coincidence
July 30, 2008
Some dispute exists over the date and level of the latest and all-time record high in oil prices. One camp cites $147.27 on July 11th, but another view puts the peak at $147.91 per barrel on July 14th. Coincidentally, Bastille Day in 2006 saw oil prices crest at of $78.40, a record high that stood until August 1, 2007, and in the intervening year, prices sank to as low as $49.90. The coincidence of historic peaks on Bastille Day two years apart illustrates the seasonal firmness of oil in mid-summer and the tendency of prices to settle back thereafter, as markets position for the autumn when demand is not quite so high. With prices now more than $20 below peak, the 36.4% retrenchment following the July 2006 high serves notice that oil price volatility can be experienced on the way down as well as up. However, the underlying direction of energy prices has not been downward since 1998. Declines since then, while sharp at times, have failed to endure. With that history, most central bankers around the world are treating the recent downturn in energy costs as extremely welcome but not sufficient to let up on the monetary brakes. Extinguishing any incipient second-order inflation is considered critical just in case oil prices roar back upward again sometime within the next twelve months. The dip in oil creates an opportunity to hammer expected inflation back downward.
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