Oil Slick

How high can it go? That’s the billion dollar question.

Oil ministers from around the world are meeting in Madrid. There is no shortage of supply. And the demand destruction in developed economies is significant.

Car-makers around the world are shuttering pickup truck plants. The fuel savings that result when you move from 12 miles per gallon to 25 miles per gallon are three times as much as the savings that come from moving from 30 to 50 mpg. The technology is there to cut fuel demand by half.  And people are driving less, too.

Speculation may be driving prices higher. But if prices are too high, demand will go down while supply soars. Since long-term effects differ from short-term effects, rising prices almost insure such an overshoot.

It happened in the ‘80s. The run-up in 1980 was followed by a crash in ’84. Everyone remembers $34 oil at the peak; nobody recalls $8 oil at the trough. I can’t tell you when the crash will come this time, but eventually it will come.

Douglas R. Tengdin, CFA
Chief Investment Officer
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By |2014-09-03T19:57:18+00:00July 1st, 2008|Global Market Update|0 Comments

About the Author:

Mr. Tengdin is the Chief Investment Officer at Charter Trust Company and author of “The Global Market Update”. The audio version of each post can be heard on radio stations throughout New England every weekday. Mr. Tengdin graduated from Dartmouth College, Magna Cum Laude. He received his Master of Arts from Trinity Divinity School, Magna Cum Laude and received his Chartered Financial Analyst (CFA) designation in 1992. Mr. Tengdin has been managing investment portfolios for over 30 years, working for Bank of Boston, State Street Global Advisors, Citibank – Tunisia, and Banknorth Group. Throughout his career, Mr. Tengdin has emphasized helping clients manage their financial risks in difficult environments where they can profit from investing in diverse assets in diverse settings. - Leave a comment if you have any questions—I read them all! - And Follow me on Twitter @GlobalMarketUpd

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