On Friday’s trading session the West Texas Light Sweet Crude Oil price has hit a low of $40.5 pb, a price that was people’s nightmare 5 years ago and the sweetest dream of all just 6 months ago.
Now, let’s go back in history and find out why crude oil prices has raised to more than $140 pb and why did it fall back to these levels.
When the prices were raising the annalists said it’s because of China’s and India’s economic growth, which was true actually. Other annalists added the political uncertainty in the Middle East, which in my opinion is partly true, because political uncertainty proved to be a short term driver, while we have seen a 5 year rally for the crude oil prices, the political uncertainty still exists and the prices keep falling. The most interesting analysis, the one that I don’t buy, is that we are running out of oil, it’s not that it’s unlikely to happen, it’s just the way this analysis was presented, it was never clear how they got to the numbers they presented to us. And we shouldn’t forget the most important short term market players, brokers and scalpers.
It’s important to distinguish between the long term drivers and the short term ones. In my opinion, economic growth and oil reserves are the most important factors to look at, if we are talking about investing or strategic planning.
I personally wish that oil prices fall even more, I don’t know it just makes life sound easier when oil prices are low.