Goldman Sachs, Morgan Stanley, etc. are predicting oil prices to go lower yet in the coming year. But we might remember that they didnt see coming this drop, so what makes them think they can predict what happens next? They were calling for $90 oil a few days ago; now they say it can go to $50 or lower. So should we want oil prices to go really low? It is fun, but what does it mean long-term? Oil prices are certain to rise again at some point, since the present low prices are below the world average cost of production. As to when and how much they will rise, the banks dont know any more than the rest of us. If prices stay below the long-term cost of exploration and production for any significant length of time it will later mean higher than average prices; so prepare for a rollercoaster ride. Save the money you dont spend on gas now, for you will need it shortly. For the average price must ultimately reflect the cost of production (plus a profit). The price will revert to the mean. This Spring will be a good time to buy a fuel efficient car, since demand for them will drop off, and then subsequently rise when prices shoot up. Electric cars will get real cheap, real fast. And what about the laymen conspiracy theorists who claim that the oil companies hold prices artificially high? And that the government is in on it? Many of the worlds top oil producers, from whom we get our supply, are state entities inimical to the West and especially the US: Venezuela, Russia, the entire Middle East. Mexico is friendly but has limited supply. Saudi Arabia can extract oil at a cost of $5 -$10, but fracking is more expensive and is starting to see an environmental backlash. The ultimate takeaway is that oil company stocks are getting cheap - since Wall Street investors (pension funds among them) are short term guys. Sink some savings into big oil stocks when they are cheap and wait a couple of years, and you too can be an oil baron. The world is as it is. We all consume oil. We need to work together to make it as rational and safe as possible.
Posted on: Mon, 08 Dec 2014 15:51:01 +0000
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