Monday, August 18, 2008

How far will oil prices (and other commodity prices ) fall?

The markets are now very disconnected from realities and are based on "sentiment" or "herd instinct".

I predict therefore that the oil price will fall to around $50 before recovering (at some point in the future) to $70-80. I don't anticipate prices arising to over $100 again for some considerable time.

There will be similar drastic falls in commodity prices before a parallel recovery.

How long will it take for the global economy to recover? It will not start recovering earlier than say 3-4 months after any actions by the new US President (and her/his team) - assuming that such actions are effective.

Before any recovery can happen, it is necessary for the global economy to clean out "excess liquidity" (i.e. absorb the money that has been printed without regard to the total national value of goods and services, most notably in China and the US, but also by most other countries, since the bust).

In other words, I don't see a recovery before Summer 2009 at the earliest. Recovery should, in fact, take much longer - but the global economy has stopped responding to any "should" and has become entirely irrational.

Much more fundamental changes (and of the right kind!) are necessary for the world to see sensible and stable economic growth, but whether the changes that will come are of the right or wrong sort remains to be seen. Sphere: Related Content

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