1. Oil and the Global Economy
Oil prices were volatile last week with New York futures trading around $55 a barrel and around $60 in London with little change at week’s end. In the absence of any solid news on supply or demand, traders jumped in and out of the markets in a attempt to find a price bottom. On Thursday, London’s Brent closed below $60, the lowest close since May 2009, before rebounding, largely on optimism and technical issues, to close out the week at $61.38.
The issue of just where the bottom of the price decline will be found is the subject of much commentary. Most observers are saying that the markets will likely go lower next year as more supply is slated to come on line, and the markets are expected to remain weak. The UAE’s oil minister and President Putin both mentioned $40 a barrel in public recently. A more sophisticated analysis was published by Reuters pointing out the reasons we could see a new trading range, with a bottom at $20 a barrel and a top at $55. Under this scenario, US shale oil producers, who can be very fast on their feet due to the large number of wells they must drill every year to maintain production levels, would become the new swing producers.
