The Crude Watch
February 22, 2008
– Comments (10)
Minyanville had a very good post looking at oil, "stagflation", inflation, deflation, economic growth, etc.
I am of an opinion that crude will see a downward corrections and where I see that coming from is supply and demand. Recessionary forces will reduce demand in a number of the global markets, the US, Europe, Canada, and so on. Already we see a shift to those buying vehicle to buying smaller vehicles. As people try and balance their home budgets, they will be driving less, and travelling less. People have no choice but to get debt under control.
You can't buy anything that hasn't had an energy input, not a thing. People are cutting back on spending, and that is a cut back on energy.
China has the Olympics this year and they've had a huge increase in growth due to that. Do some homework here and what you find is that everywhere that you have an olymics you have a huge increase in growth going into the Olympics. You get 5-10 public projects built where normally there would be one. China's economy has had a duel leverage happening here, their exports to developed countries, which are declining, and their building for the Olympics. I can't see them not having a slow down. China does a lot of part imports from India, well, there goes India into a slow down as well.
Meanwhile, capital investment is already committed and happening in oil, there will an increase in supply before there is an adjustment to capital investment.
It seems to me that China has much strong fundamentals in terms of the level of investment into wealth producing industries, so they have greater choices in how to over come a slowing export industry and public works, however, China has to go through a slow-down period of adjustment.
Oil can do a little spike here, but I still think it loses up to a third from the peak.
As Minyanville says:
"The Great Depression did not just ruin banks and wipe out stock market speculators, it permeated every aspect of life for an entire generation. How many of us listened with wonder as our grandparents (or parents) rationalized seemingly absurd and frugal behavior because of some transitory event 70 years in the past.
"Excess credit is our generation's allegory – it's all we know. It touches every aspect of our financial lives, from buying bread to buying a house. Credit crosses socioeconomic borders, used by rich and poor alike to conduct the transactions of life. The impact of this swift evaporation of such a ubiquitous aspect of daily life cannot be downplayed; it holds an unprecedented potential to alter the way we live. "
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