There has been increasing talk of a 'double dip' recession. One where we recover this year and next year all Hell breaks loose again. This theory is being reinforced by renewed enthusiasm over oil prices. Speculators are again driving up futures even while the world is awash in oil. The photograph left shows oil tankers floating off of Singapore. All are laden with oil, and none have anywhere to take it. This is called floating storage. It does not show up on countries' inventories, therefore does not register with speculators. If the speculators drive prices up and US gasoline again breeches $4.00 per gallon, this fragile 'recovery' will go pop.
Friday, May 8, 2009
Oil Prices Could Cause 'Double Dip'
There has been increasing talk of a 'double dip' recession. One where we recover this year and next year all Hell breaks loose again. This theory is being reinforced by renewed enthusiasm over oil prices. Speculators are again driving up futures even while the world is awash in oil. The photograph left shows oil tankers floating off of Singapore. All are laden with oil, and none have anywhere to take it. This is called floating storage. It does not show up on countries' inventories, therefore does not register with speculators. If the speculators drive prices up and US gasoline again breeches $4.00 per gallon, this fragile 'recovery' will go pop.
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Isn't the problem that low prices make it economically desirable for crude exploration and production to scale down. When demand comes back online we'll be supply constrained and prices will rise much faster than they fell from late 2008 and early 2009.
ReplyDeleteCrude speculators who've been buying in the $30-$60 price range will help the markets by providing Supply if and when spikes occur.