Oil will be $100 by Christmas and $50 within a decade

While demand and speculation have combined to drive Oil to an all time high, its price could be below $100 by Christmas, and below $50 in under a decade.

The price of crude oil has more than doubled in price since the $70 price we had in August 2007. However the price increase is not down to supply and demand forces! The Commodity Futures Trading Commission (CTFC) reported that about 70% of buyer activity was by speculative investors, and that there is double the number of speculative traders today than at the turn of this century.

Now, speculators are good and help support markets so peaks and troughs are avoided. Hedge Funds and Investment Managers are turning away from the traditional stock and money markets, and are holding out here, which has led to a disrupted market. The market will correct itself, and other markets will come back to offer higher returns, so the money will move, just as it did in the Dot Com boom rupture of only a few years ago. This is going to be driven by a curb in consumption which is being created by governments of developing nations who are removing subsidies, leaving a situation of over supply, which will drive the speculators to quickly sell their positions to preserve their funds to invest in other markets – so $100 by Christmas is a distinct reality.

It will happen, but it will happen at the markets behest. Recent attempts to influence the market by a rumour of an American/Israel invasion of OPEC’s second largest producer, Iran, would normally be ignored by politicians, however both 5th Fleet Commander and Israeli Minister of Defence issued quick denials of any truth.

The reality is that the net increase of demand for oil in the past year is only 1.7% - the typical norm in terms of expectations, even with the economic burst rate of Asia and China. Couple that with statements by Libya that production should now be reduced to maintain the price – ratifying that we are still in an over supply situation, even though the commodity in question is actually a finite resource. However, there is still the fact that there are up to 500 Billion barrels of Oil under Dakota/Montana which would give the USA the ability to enjoy sub $50 Oil, but we are told its still not viable to go and get it any time soon even though today the USA only produces 40% of its own needs.

So for now, we need to keep efficient and keep productive – the underlying economy is still in good shape, and most sectors continue to grow, even at only a modest level. We have the benefit of insight into what helped get us out of the bad recession of the 80’s, so we must battle this one immediately, rather than repeating the mistake of waiting a decade to do so.