I knew it! Oil breaks $115 and the doom-mongers are already coming out.
Now that supplies are rising, speculators are leaving the market, and consumers are driving less, the gloomers are seeing storm clouds around this silver lining.
The theory is that the only reason oil prices are falling is because global demand is falling. And that’s because the world is entering a recession. But there are a lot of reasons why demand is down. Some is technological, as people drive smaller cars. Part is economic, as the developing economies remove their subsidies. And part is also behavioral, as people drive less.
But it’s also about supply. For five years oil has been on a tear. New college grads with degrees in petroleum engineering can get employment offers in six figures. And people who bought tankers full of oil and had them sail slowly into port are now in a rush to cash in.
Twenty years ago Time magazine ran an issue that said that cheap oil was both good and bad news. With the US importing about two thirds of its total oil needs, lower prices are good.
Douglas R. Tengdin, CFA
Chief Investment Officer
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