The PunchLine: “The Oil Crash Is No Small Matter…Repurcussions Will Be Extensive”
Awkward Beginnings… With all due respect…
What a way to start the year. The crash in oil prices is no small matter. The previous down sweep in energy prices occurred in the midst of the financial crash 0f 2008 and Great Recession. Oil prices soon reversed afterwards and climbed back to dizzying heights, even as world economic and financial recovery remained fragile. This time it would be foolish to bet solely on such a similarly quick snapback. The current bear market for oil may actually be the beginning of a longer and extended period of low commodity prices…
First, the price of oil at $100/bl or above had been an absurdity.Second, many nations simply cannot afford to curtail pumping oil, even at a loss in the short run.
Third, global growth is proving to be woefully inadequate and uncertain. Even as growth in the U.S. economy is becoming more firmly entrenched, the rest of the major economic engines remain mired, as we have argued for some time, in subpar growth trajectories. The Euro area may be facing another soft patch and remains entangled in both economic and geopolitical crises. The recovery in Japan has been slower than expected. And China continues to grow well below its previous super- track; and it obviously faces headwinds from a volatile real estate sector, awkward debt buildups and massive stockpiles of high-priced commodities.
Fourth, the shale gas revolution has transformed America’s energy markets, with profound effects for economic growth, competitiveness, security, and environmental quality. And the extensiveness of the oil rush in America is also playing a big role in pushing the adjustment on prices.
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