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Oil Falling: Locusts

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    Posted: December 01 2014 at 7:10am
Can oil fall all the way to $40?

http://finance.yahoo.com/news/oil-fall-way-40-022811085.html
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Post Options Post Options   Thanks (0) Thanks(0)   Quote ASB Quote  Post ReplyReply Direct Link To This Post Posted: December 01 2014 at 7:48am
Yes the price has dropped recently and that has been a boon for anyone who buys gas - namely almost all of us consumers. The losers are the government taxes at the pump, vat taxes in EU, and oil companies.

The article also got the three main reasons right.

1.  Lack of demand. For countries that have poor economies presently they are not buying as much oil. I think we can expect many countries to have lackluster economies for years to come thanks to bad gov policy. Regarding these bad policies any government that is in debt hates deflation and will kick and scream and do everything it can to eliminate deflation. The question is can a government control deflation without causing uncontrollable inflation?

2. more production. Several countries around the world are producing more oil than before thanks in part to fracking (natural gas) and other new technologies. Basic rule of supply and demand is that if there is more oil there will be lower prices. Opec is willing for prices to remain low for now with the hope that unprofitable prices will cause many competing oil companies to go out of business. If those companies do go out of business then they will no longer be producing oil and prices can go up again. Some of those "companies" are whole countries like Iran and others are companies in the U.S. Soo? Are oil companies "too big to fail"? Will our gov bail them out with our money?

3. a strong dollar. with the dollar being able to buy more that means that prices come down. Of course so far only oil and commodities have come down while food prices remain the same. I'm guessing that is a strange feature of QE and a poor economy. If our economy were good we would have inflation and if and when the economy improves we will have inflation. Which of course will increase the price of oil. QE should also cause inflation which so far has not shown itself anywhere except in the stock market and some foods.

In short I expect that two of those three reasons are temporary. Should Europe's economy recover (doubtful), should production fall as companies go out of business, and should the dollar get weaker again (our government wants this to happen and they will go to great lengths for it to happen) then oil prices could skyrocket pretty fast.

After the author got the three main reasons for the price drop right and stated that there were three reasons the author then went on to give a fourth reason. What the? I really don't know what the author was talking about when he said that the financial markets were causing the price to go down. Really it is the other way around and markets tend to stabilize prices.

Am I saying it won't go to $40 before it goes up? I have no idea how low it will go. Enjoy it while you can and take heart in the fact that global warming is a crock.
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