Investing for the Oil Price Collapse

Source:

Certainly, a political disruption of oil supplies -- civil war in Nigeria, major fighting in southern Iraq, attacks on Caspian pipelines -- could occur and would send prices sharply higher, but overall there is a greater likelihood that prices will drop in the next few years, and perhaps sharply.

With oil prices soaring in recent months, the primary focus in the investment community has been on the potential ceiling, which some have put at $150 or $200 per barrel, possibly attainable within a year or two.

Certainly, a political disruption of oil supplies -- civil war in Nigeria, major fighting in southern Iraq, attacks on Caspian pipelines -- could occur and would send prices sharply higher, but overall there is a greater likelihood that prices will drop in the next few years, and perhaps sharply.

Oil is a mean-reverting commodity. Since the industry's early days, price revolved around a mean of less than $25 a barrel for over a century, despite world wars, the market monopoly of Standard Oil, the cartelization by the Texas Railroad Commission and finally the U.S. import quotas in the 1950s and 1960s. Only OPEC was able to raise it above those levels. Others have made the very pertinent point that oil production seems to be increasing only slowly of late, while demand continues to grow and the booming economies of Asia are creating new, wealthy consumers in large numbers, suggesting a 'new oil market paradigm' where prices will not retreat cyclically...

Related Articles

Get Our Streetwise Reports Newsletter Free

A valid email address is required to subscribe