Oil, The Dollar, Supply and Demand

by Laura Ehrenberg-Chesler on January 14, 2016

in Commodities,currencies,Energy

For the first time since 2003, the per barrel price of oil breached the $30 mark on January 12th. There are several contributors to this current phenomenon. Because oil trades in dollars, the recent strength in the dollar has been a significant contributing factor to the price decline. In addition, the often talked about “shale energy boom” and its contribution to the oversupply, coupled with weakness in China and the subsequent drop off in demand, has created the perfect storm for natural gas and oil. There may also be an element of traders shorting oil futures, exacerbating the selling and driving the price even lower.

What is equally interesting to us here at Crossvault, is that a short 3 or 4 years ago, prominent investment firms were calling for “peak oil” and a price of $200 per barrel. Owning an SUV or a pick up truck was considered foolish with the notion that there would be a time in the not too distant future when it would be too expensive for the average driver to fill the tank.

While we are not in the business of prognosticating oil prices, or calling a top or bottom in any market, it seemed to me that the price of oil would not likely trade at $200, for the same reason that it will stabilize in the next 12-18 at a price higher than where we are today at $30. Extremes are generally not sustainable.

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