Friday, October 17, 2008

Oil Prices Will Continue to Fall

There's no question that the trend for oil prices has changed, and for a period of time we'll see that trend continue down.

A major reason I believe this will happen is the nature of trends themselves; it simply takes time for a trend to stop and turn itself around. The reason it takes time is because a trend is simply the response of human beings to a situation, and most human beings are slow to catch on and change.

In other words, people will neglect the underlying fundamentals at times of emotional turbulence and simply follow the crowd. Many times they do it as "bulls" and other times they do it as "bears." We are seeing the bears rear their heads in oil now, and that isn't going to stop in the short term.

While we know over a period of time that demand will start to surge again, as American consumers start to increase their driving again, and emerging market giants like China and India increase their acquisition of oil, and other commodities as well, we also know that they're cutting back on buying now, and that slowdown should continue.

One factor that could slow down this trend is if OPEC slashes production so much that it drives the cost of oil artificially above its market price. That could happen next month when they get together in an unprecedented emergency session to decide on what to do with the oil price drop.

We very well could see oil prices plunge much further before they begin their inevitable climb back up. Much of that will be determined by how long the fear factor reminds in the psyche of consumers, which has caused them to lower their consumption practices.

1 comment:

  1. I agree that the oil prices will fall further.

    There is a popular myth prevalent among people that the number of petroleum-industry jobs fluctuates with the price of a barrel of oil. There is an exception this time around that despite the steep fall in price, Oil majors are on a hiring spree. Maybe a lot has to do with its rapidly maturing work-force.

    In anycase, it is heartening to see one sector which is not effected by the economic slowdown in terms of job prospect.