Toss Another Old Assumption Aside–For Now
Recall how we were once told oil market forces had a high disdain for uncertainty.
When I was following the news this past weekend from the Middle East I wondered what would happen to the price of oil on the world market. After all there was (and is) a lot to be concerned about following Saudi Arabia’s execution of a Shiite cleric. Iran and others in the Shia world forcefully demonstrated their anger about the killing and left many outside that region to ponder the consequences.
But over the past days oil prices actually fell even as those tensions flared. This news underscores the fact our world has a vast over-abundance of crude oil and there are of course positive and negative effects of this supply issue.
The upside is that gas prices remain low. The downside is that those low prices make people think larger and less environmental vehicles are now worth buying.
The oil glut pressures Russia’s economy, but also serves notice that China is stagnating and not using the amount that otherwise would add to their overall economic output–which then weighs down international markets.
But for me the news from this weekend and then the lower slide of oil prices flies in the face of everything my generation always felt to be a fact. Political unrest in the Persian Gulf is no longer a sure-fire source of price increases per barrel.
It will be almost a sure bet that Saudi Arabia nor their OPEC allies will not be lowering production at a time when such a move would only assist their main regional rival, Iran. But if tensions increase and there is some event that threatens to curtail movement of tankers all bets will be off for how fast prices increase.