Long-Term Implications of the Gulf Oil Spill on Precious Metal Markets - Gainesville Coins News
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Long-Term Implications of the Gulf Oil Spill on Precious Metal Markets

blog | Published On 7/2/2010 1:55:32 PM by Gainesville Coins

The oil rig explosion will certainly prove to have consequences over and above the already observed environmental effects. Concern over ramifications on supply – both short-term and long-term – and what this means for global markets has already surfaced.

According to Erin Roth, the executive director of the Wisconsin Petroleum Council, consumers are not likely to see an increase in pump prices because the oil lost as result of this spill represents such a small fraction of global volume.

A more valid worry however, may be the potential long-term implications on oil supply. President Obama stated April 23 that no new offshore oil drilling leases be issued unless rigs have new safeguards to prevent a repeat of the explosion that caused the recent oil spill. This could raise oil prices in the long-term in one of two ways. It is likely that because the President’s mandate implies additional costs to companies wanting to drill in the Gulf of Mexico (i.e. those associated with implementing these new safety measures) that these firms will either pass them on to consumers, or forgo the installation of these rigs altogether, thereby reducing overall supply, and putting upward pressure on global oil prices.

Additionally, anticipation of effects of the oil spill on supply is likely to affect other markets. As investment markets which concern themselves with products for which the demand is relatively inelastic (in this case, oil) have historically enjoyed robust participation, and even more in times of rising prices, the coming upsurge (or anticipation thereof), is likely to entice more investors into oil-related markets. This increase in attention to oil is sure to have the effect of detracting investment from other rising markets such as precious metals like gold and silver.

Regardless of whether it is the result of an actual rise in the cost of producing oil, or simply speculation about it, it seems that the recent oil spill in the Gulf of Mexico is having, and will continue to have real implications on global markets.

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