Friday, November 21, 2008

A little Crude ...

Back on July 6, Atrios wrote that he didn’t expect to see oil drop below $100/bbl again. At the time it struck me as a pretty bold-and to my mind unfounded-statement. He made that prediction as oil peaked and has since dropped steadily save one bump in September (see chart below). It has been below $100/bl for as long as it remained above $100/bbl after his prediction.

In fairness, I didn’t think oil would drop below the $70-75/bbl price range and thought the natural price was probably in the $60-70/bbl range. So, its current price below $50/bbl is surprising to me. I don’t think that the current price is stable and I imagine oil will rebound strongly in the near term (6 months – 1 year) and begin to oscillate. This may not be optimal, but, as my physics friends remind me, sinusoidal oscillations are a steady-state solution.

(data from EIA, daily light sweet crude settlement on NYMEX in $/bbl)

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