Is oil price self limiting?

Lord Beria3 · Post by **Lord Beria3** » 01 Feb 2010, 18:34

Ralph. Great post.

Agree with you, but how do you see the situation developing? I am betting on a government-led inflationary explosion as a response to anemic/contracting economies, but it may be that different micro-areas in the world, say Dubai (default) or the Eurozone/Japan (deflation) could go through different forms of economic hell.

Looks like the Anglo-sphere states like the UK, US will go down the hyperinflationary route eventually.

PS_RalphW · Post by **PS_RalphW** » 01 Feb 2010, 20:08

I really don't know what will happen where, or how fast. The end result is easy enough to predict, but the route is unknowable.

Prepare for the unexpected, is about the only advice I can give. Have a plan b, c, de and e.

snow hope · Post by **snow hope** » 01 Feb 2010, 21:21

It is hard to predict anything to get rid of debt other than hyper-inflation. This has been used before - remember the 1970s....

Other than that, I can only see currency crashes and economic reset - pretty horrendous choices.....

Quintus · Post by **Quintus** » 01 Feb 2010, 21:56

There's a Spiegal Online article that hints inflation may be the way ahead for the Euro countries:

Straubhaar says one solution would be to allow inflation in the euro area to rise. That would lessen the real burden of nominal debt, and in political terms would be the simplest way to deal with excessive government debt.

"Inflation lessens the real purchasing power of the masses like an indirect tax (...). But there's a tremendous difference: It requires no parliamentary approval," Straubhaar wrote.

He said the European Central Bank will need to tolerate higher inflation. "Higher inflation rates are the cost that an economically strong euro country like Germany would have to pay to prevent a break-up of the European Monetary Union, which would be even more expensive."

Rising inflation would also cause the euro to depreciate further against other currencies -- good news for exporters, but bad news for importers, holidaymakers and savers, wrote Straubhaar.

http://www.spiegel.de/international/eur ... 96,00.html

Totally_Baffled · Post by **Totally_Baffled** » 01 Feb 2010, 22:20

So we have the UK hoping for a weak pound to strengthen exports, you have the US doing the same, and the EU.

You then have the Chinese subsidising the yuan, to remain competitive against ever depreciating foreign currency.

Then there is the Japanese , who rely heavily on exports - so presumably they wouldnt mind a bit of export growth and a weaker yen.

Is this somesort of bizarre race to the bottom?

Surely they cannot all rely on this tactic? All these currencies will be worth bugger all after a while lol!

Maybe this is good news for the pound, other countries wont want a competitive UK plc, so they must depreciate there own currencies

Mitch · Post by **Mitch** » 01 Feb 2010, 22:47

I'm not sure we will ever see $150 again. Last time round everyone was flush with the readies after a lovely huge "growth" period - they managed, (airlines in particular), to continue for a while at that price by dipping into the "savings". Methinks the "savings", government and otherwise, are now all gone. Next $100 or so so price - and nothing to tide 'em over for a coupla month's - and we instantly have the next "slight down-turn" with construction companies/airlines going bust and the associated "minor" losses to the banking system, which in turn falls over.

I have noted that someone somewhere does something drastic everytime the price touches on $80 - very quickly comes back down to around $75, so I imagine that the problem is between $80 and $90 maybe.

All just guess-work, so don't qoute me on this - just a personal impression.

snow hope · Post by **snow hope** » 01 Feb 2010, 23:29

hmmmm, interesting hypothesis Mitch. Time will tell.....

Vortex · Post by **Vortex** » 02 Feb 2010, 08:54

I have noted that someone somewhere does something drastic everytime the price touches on $80 - very quickly comes back down to around $75, so I imagine that the problem is between $80 and $90 maybe.

Will the price still be $80 when we're down to say 70 mbd output?

Lots of systems have a critical boundary with hysteresis.

You approach the boundary, a little disturbance pushes you over, you sit on the other side for a while, and then drop back again.

However the drift continues so you get nearer the boundary and so get pushed over more often ... until one day you are DEFINITELY at or over the boundary, so no more flip-flopping.

$60 $65 $85 $86 $61 $61 $62 $87 $64 $64 $90 $95 $65 $65 $65 $66 $66 $100 $100 $100 $100 $100 $100 $100 $100 $100 $120 $120$120$120$120$120$120 ...

Lord Beria3 · Post by **Lord Beria3** » 02 Feb 2010, 10:53

I brought a energy fund shares when crude was around £60 and when it flirted with 85 recently, it had appreciated by 25%.

Im banking on some form of supply crunch 24 months down the line which will send oil prices up to the 140-200 range. I have been hoping that as crude rises, the shares rise as well.

Is this the case? Its worked so far, a 20 increase in crude led to a 25% in the size of the fund, but starting to have doubts now. At some point, does high crude prices and higher shares for the energy sector start to break down??

Mitch · Post by **Mitch** » 02 Feb 2010, 21:29

Beria, my thoughts are that above £90 to $100 - perhaps even lower - the world's econonomy, as it stands, can't afford it. Large scale business cannot buy, goes bust and demand goes down the drain, oil prices follow - see 2007/2008/2009. Very simplistic I know, but disregarding all the complexities, (which actually DO have a reasonable influence), this is what I think is "putting it in a nut-shell". Adding in all the variables hopefully makes forecasts more reliable - but, in my experience, weather forecasts are STILL about as reliable as my arthritus predicting rain

(I trust the arthritus, I'm afraid)

Mitch · Post by **Mitch** » 02 Feb 2010, 21:47

Cheers Vortex, thanks for that, but my experience is somewhat different. I took out a credit card at 16 %, increasing to 18% after the "introduct'ry" period. Well affordable at that time, (2001). All is well and within budget until MBNA "buys" out my banks cards, (around 2006). MBNA decides to increase the interest by 2% every coupla month's, my income doesn't change anywhere near that sort of increase - doesn't take long before I have no option but to default, (at 34%), - this creates extra charges and the downward spiral, or "vortex", (sorry), is totally out of control. Oil price does this to big budgets with the same result, I postulate.