Publications: Notes at the Margin

Random Threads (February 26, 2018)


This week's report focuses on Brent's waning relevance as a benchmark and the threat of inflation going forward being higher than projected. On the first topic, Brent will be displaced as the primary global benchmark by crudes from the US Gulf Coast, most likely West Texas Intermediate (WTI) delivered in Houston. The US market will win because it is more competitive, has abundant low-cost storage, and has large volumes of oil that meet standard specifications.


Regarding inflation, there are several reasons for worrying about it being higher than projected, perhaps rising at a five-percent clip at the end of the year. These relate to the very low unemployment rate, limits on immigration, the dollar's anticipated weakness, protectionist policies, and the very large budget deficits tied to the tax cuts and expenditure bills passed by Congress.


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