Wharton Professors Jeremy Siegel and Witold Henisz Weigh In On Oil Prices

In my experience, professors are actually pretty good at seeing the big picture and figuring out what is going. This interview of Jeremy Siegel and Witold Henisz is illuminating regarding the increase in oil prices and what's causing it.

Wharton, the business school at the University of Pennsylvania recently published an interview with finance professor Jeremy Siegel and management professor Witold Henisz discussing the increase in oil prices.  Some of what they said suprised me, including:

  • There is a lot of uncertainty about whether oil production can be increased or even maintained.  The difference between supply and demand is pretty thin and oil is produced in some pretty unstable places.  A revolution here, or a terrorist bombing there could wreck havoc on oil supplies.  The lack of a margin between demand and supply and this uncertainty has helped raise oil prices.
  • They don't believe like George Soros does that speculation is driving the price.  Instead, they believe that investors, companies, etc. are buying oil related assets as investments, as any prudent investor would do to take advantrage of market conditions or in the case of airlines, hedge their future purchase prices.
  • They don't believe a weak dollar is driving the price of oil up.  Oil prices in Euros have also seen huge price increases.
  • They believe that oil has just started to impact inflation and that the recent rapid increases will be felt over the next 4-6 months.

Professor Siegel ends the conversation by saying he's relatively bullish on the stock market.  He believes that if oil wasn't such a drag, and came down to the $100 range, the market would go up 15% from where it is.

Read the full interview.

Sol Nasisi
Sol Nasisi: Sol Nasisi is the co-founder and a past president of BestCashCow, an online resource for comprehensive bank rate information. In this capacity, he closely followed rate trends for all savings-related and loan products and the impact of rate fluctuations on the economy. He specifically focused on how rates impact consumers' ability to borrow and save. He also has authored a wee

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Comments

  • Rick

    June 20, 2008

    Their article seems like a rational assessment of prices. Thank you.

  • Helen

    June 20, 2008

    This was one of the sanest analysis I've seen of the increase in oil prices. I can't make heads or tails of what is written on other financial sites. Thank you so much for posting. These guys seem honest and don't have a hidden agenda.

  • Sam Cass

    June 20, 2008

    How about one of the most insane :). Nothing here changes my opinion that oil will be below $100 per barrel by Jan 1, 2009. Mark my words. Everything they have discussed has been in play for the last four years. So why is oil suddenly shooting up now? Why has the financial market for oil futures grown by over 20x in the past 10 years? I'm not saying it's pure speculation, altough as the article mentions the line between the two is fuzzy, but it's investment activity that has driven recent price increases.

  • La Paz

    June 20, 2008

    The cause is irrelevant. It's a wake up call to reduce our dependence on fossil fuels. I hope the price stays high so that the point is made.

  • MBANewlyMinted

    June 21, 2008

    The warnings of oil pundits and environmentalists is coming true. Nuclear is the only solution.

  • JRodgers

    July 06, 2008

    The only thing that I can guarantee you is that this guy knows nothing that everybody else doesn't already know.

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