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

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.