World economy can not afford higher oil price in long run. Since as oil price goes up inflation or one could say commodities prices bound to go up whether it is due to increase in cost of production, transportation or shortage in agri commodity due to shift of crop cultivation towards corn or sugarcane in hunt for cheaper source of energy. As inflation goes up all around the world then to curb the inflation all central bank would adopt tighter monetary policy. That will triger slow down of economy and will cause lower demand for oil and pull down the price of oil according to fundamental law of economics demand and supply.
Another argument can be given that if cartel of oil producing country try to push up the oil price artificially then same pheomenon will happen as described above and another thing as inflation will go up all over world due to excess increase in price of the oil. Then the cost for the goods that oil exporeter country import will go up, therby it erodes the profit of higher crude oil. Also the excess money that these OPEC country get where they will invest? The real value of their currency will come down as world economy slow down. As commodity price peaked up that will triger the stock prices to bottom out and these petrodollers will not find a safe heaven for investment. Hence any speculation or forced increase in crude oil price will not going to sustained in long run. So friends whenever you find price goes beyond the reasonable level sell short crude. :)
Ravi Ranjan, rranjan27@gmail.com
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