Oil rebounds from $40, going back to $75?
Posted on 10 December 2008 with no comments from readersOrder my book online from this link
The World Bank is predicting the worse recession since the Great Depression of the 1930s, and yet it still reckons oil prices will be back to $75 within three years. Merrill Lynch has $25 in sight for a bottom in the oil price next year but is also optimistic about a recovery.
Indeed, the World Bank’s Global Economic Prospects report said the commodities boom of the past five years – which drove up prices 130 per cent – had ‘come to an end’, but then again immediately offered very good reasons for a rebound. The arguments of limited new oil supplies and rising demand are well known.
Why panic?
So why the panic in the Gulf States and the rush to liquidate stocks? It does not look like a long recession is in prospect for the oil producers while they still have the accumulated surpluses of the past six years of boom to tide them over.
Indeed, downsizing or rightsizing as those unaffected by it like to say, is likely to improve rather than harm the long-term productive potential of the oil producing countries. Some of the excess of recent years will be shed, and the most uneconomic projects and developers will fail.
Money will eventually be channelled into the money makers rather than the money losers. But it will still be a challenging period for government and management to sort out the wheat from the chaff, and painful for individuals most affected by the downturn.
No big bailouts
But at least the oil producers will largely obey the iron laws of economics and sort out their problems. There is no sign of the sort of universal bailouts like in developed countries which will saddle future generations with debts and carry a high risk of inflation and long-term damage to economic productivity.
Indeed, if you have to chose a place to stay and do business during this awful period in the global economy then the Gulf States have better prospects than most. But remember that is because economic forces will be allowed to prevail – clearing out the dead wood for the upturn – and anybody falling foul of the laws of economics will be out.
no Comments posted by readers:
Before it goes back to $75 you will see $30 or less and maybe even $25. If you don’t think so then wait and see. Oil prices will come down as hard as they went up. ETF’s in the US will be a great buy once oil prices come down under $30. My guess is a $25 bottom or right around $25. Cutting production now is like the Fed cutting rates now. They are a bit too late to cut production. They should have cut production before prices started to fall just like the Fed should have cut rates long ago. Until OPEC runs out of bullets or cuts then these oil prices will keep tanking until they bottom out some where under $30.
The UAE made a huge mistake yesterday by not following US rate cuts. Their ignorance in not reducing rates during these tough times and falling real estate prices along with falling oil prices will bit them back quite hard and they will regret not having cut rates.
Time will tell if I am right but my guess is from here on we will be on a rollercoaster ride downhill. January and February should be bloody.