Benn Steil


A graphical take on geoeconomic issues, with links to the news and expert commentary.

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Showing posts for "Commodities"

Psychology and the Oil Market

by Benn Steil and Dinah Walker

In his recent book, Market Madness: A Century of Oil Panics, Crises, and Crashes, our colleague Blake Clayton explains the role of market psychology in contributing to the wild price swings that have characterized the oil market over the past hundred years.   Using data from Google Books NGrams, he shows that whenever oil prices climb for an extended period comments about “running out of oil” and “running out of gasoline” proliferate. These beliefs have repeatedly proven unfounded. Read more »

It’s the Jobs, Stupid

by the Center for Geoeconomic Studies

The Conference Board’s consumer confidence measure has, since its inception in 1967, been a perfect predictor of presidential incumbent election performance.  As shown in the large figure above, every time the measure has averaged under 95 in the election year, the incumbent has lost; over 95, he has won.

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Gold Supply and Demand



Central banks have been consistent suppliers to the gold market, at least up until the second quarter of 2009, when they became a source of demand. India bought a substantial 200 tons, illustrated by the red bar on the far right of the above figure, from the IMF in November. Russia, Sri Lanka, and Mauritius have also been buyers of late. Yet even if the rebuilding of central bank gold stocks turns out to be a long-term trend, in the short run the gold market is much more likely to be driven by volatile private investment demand, which jumped from only 8% of demand in the third quarter of 2008 to 86% in the first quarter of 2009 (see the orange block on the right of the figure). Investment demand is in part facilitated by exchange traded funds (ETFs) such as the SPDR Gold Shares, which has bought a massive 353 tons of gold since the beginning of 2009. Read more »

Venezuela’s Risk Unhinged



The credit risk of oil exporting countries such as Venezuela and Russia tends to move with the price of oil. As a country’s oil export revenue improves, so does its ability to pay its debts. Recently, however, Venezuela’s CDS spreads have increased even while the price of oil has been stable. The market’s perception of an increased risk of default coincides with the Venezuelan government’s move to close banks representing 8% of the country’s deposits. On Tuesday December 15th the Venezuelan National Assembly passed a law increasing depositors’ insurance in an effort to prevent a run on the banks. Problems in the financial sector have become the primary driver of Venezuelan sovereign credit risk. Read more »

U.S. Current Account Imbalance: Oil vs. Non-Oil



The U.S. non-oil current account balance started to improve in 2006 after a period of real dollar depreciation beginning in 2002. However, the overall deficit remained high, reflecting the run-up in oil prices. The deficit improved substantially after oil prices collapsed during the financial crisis. As the crisis recedes oil prices have started to rise and the dollar has resumed its fall suggesting the potential for a continued improvement in the non-oil deficit, but deterioration in the oil balance. The net effect is likely to be a worsening of the current account deficit. Read more »




This chart plots oil prices against Iran’s estimated import bill “break-even” oil price — the price below which Iran either had, or would have had, to find sources of hard currency other than oil exports, which constitute about 85% of its total exports, to finance its imports in a given period. From 1998 to mid-2008, rising oil revenues enabled Iran’s government to enact programs and subsidies aimed at consolidating popular support and preventing social unrest. But the steep decline in oil prices in the second half of 2008 significantly curtailed the regime’s ability to finance these programs. As the chart shows, oil prices dropped below Iran’s break-even point in late 2008, at which time President Ahmadinejad proposed that government energy subsidies be canceled, a move that met resistance in Iran’s parliament. However, oil prices have been rising in recent months, reducing the pressure on Iran’s government to make further unpopular subsidy cuts. Rising oil prices may be critical to President Ahmadinejad as he struggles to reconstruct a foundation of popular support. Read more »

European Energy Security


In what Russia claims to be a purely commercial dispute, Gazprom cut off gas to Ukraine, disrupting supplies across Europe. However, some suggest that Russia’s real aim is to exploit European dependence on Russian gas (see chart) in order to divide Europe and undermine its pro-Western neighbor. The following articles discuss the geopolitical implications of Europe’s dependence on Russian gas. Read more »