This is it guys! Whoopee! Gas is cheap again and going to be cheaper. Oil is under $30 a gallon. It’s cheaper than before we started bombing Saddam! Yay! Hoot! … I say yay! … Yay?
Yeah, gas is falling in price, but with the fall in gas prices we are not seeing the “stimulative” effect that some predicted. Instead we see pain through the mid section of the country. We started warning of such a situation about a year ago when the Saudis first turned on the oil spigot. We made the point that the fracking industry was pretty much THE jobs high point in the USA post 2008. But now, from Alberta to Houston the dark specter of recession creeps across the plains. The winter prairie winds have come back. There is a desolation setting in for some.
It won’t last forever. And a former head of Shell oil warned recently that we will see the cycle reverse itself again. He predicted that by the tail end of 2016 we could see a sharp rise in prices as much of the weaker oil producers get shaken out and inventory comes more in line with demand.
But that depends how long the Saudis are willing to keep up their “oil bombing” campaign. The kingdom is losing money by flooding the market but it has a lot of money and it is staring at a potentially existential threat in Iran.
It also depends on how bad the emerging global slowdown is. See our previous article for more on that.
Shaking off early firmness, crude extended a nearly 7 percent drop from Monday. Losses for the year of almost 17 percent have been driven by too much supply, the weakening economy of No. 2 consumer China, sliding stock markets, and a strong dollar, which makes it more expensive for those using other currencies to buy oil.
Analysts at Barclays, Macquarie, Bank of America Merrill Lynch, Standard Chartered and Societe Generale all cut their 2016 oil forecasts this week, with Standard Chartered saying oil could fall as low as $10 per barrel.