Oil Price Collapse Coming ***UPDATED, BUMPED***
UPDATE C. H. Smith and I are no longer the lone contrarians–read The New Business World article, “Oil Prices May Crash.”
Also, Hall of Record offers some intriguing charts comparing the oil price trends to recent crashes in tech stocks and the 1981-1986 world oil price collapse. As I said, “intriguing.”
And this from the Wall Street Journal:
Early signs of an easing in global demand growth and swings by Wall Street traders are pushing oil away from the historic $100-a-barrel mark, at least for now.
After rising as high as $98.62 a barrel a week ago, the benchmark oil-futures price on the New York Mercantile Exchange hit a low of $90.13 yesterday before closing at $91.17, a one-day drop of $3.45.
You might have read it here first, but I’m not the first to see this coming: oil prices could collapse before school is out for the summer.
As Charles Hugh Smith describes here, oil prices are closely linked to Middle East stability and the world’s perception of Middle East stability. For the past six years, the events following 9/11 have given us a sense of instability, leading to $100 a barrel oil. But several factors now threaten the speculators who continue to buy, and the oil futures market today looks like the tech stock bubble of 2000.
Two key events would pull the rug out from under the oil price house of cards:
* General acknowledgment of US victory in Iraq * Chinese recession
China’s rep as a manufacturer has taken more punishment than Evel Kneivel’s femurs. Come to think of it, so have the murderous thugs who destabilized Iraq for the past four years. Now that former Iraqi “insurgents” have joined forces with American forces to drive out Al Qaeda in Iraq and to police their own neighborhoods, the world is beginning to realize and accept that it was wrong and Bush (and we) were right. MSNBC’s main story, tonight, declares that Violence in Iraq has ebbed. A huge concession from a network vying for title of most liberal news source.
Here’s how I see the scenario playing out over a twelve to eighteen month period beginning just after Christmas:
* Oil prices drop (month 1) * Oil prices become unstable (months 1 and 2) * Large speculators abandon future holdings to minimize risk (month 4) * Fluctuations (up to $15 a barrel per day) frighten potential futures buyers (month 5) * Some "expert" declares oil "over-bought" and the floodgates open (month 6) * OPEC, having originally cut output, increases output to maintain revenue as prices fall through $30 a barrel (month 12) * SUVs make a big comeback (??)
Yeah, I’m probably overplaying the hand. Still, don’t act surprised if, come June, you’re paying $1.45 at the pump.