Oil adding to Global Recession?
The prices of oil skyrocketing in 2008 added to the global recession. Domestic markets relied heavy on the much lighter and cleaner sweet crude oil. The producers of this kind of oil are the Arab nations of Saudi Arabia and Iraq, along with some other eastern nations such as Indonesia and the small country of Malaysia.
The price of oil has rocked sky high and peaked at $147 a barrel in July of 2008, however with state of the economy even the OPEC cartel could not keep of the prices elevated when demand slowed down. Presently there is a drop of about 70 percent in the oil prices as of the first quarter of 2009. The prices are hovering around $47 dollar a barrel at this time. Yet this decrease still does not change the fact that prices are still far higher then they were only 10 years ago. The strain on the economy is bearing that brunt. The upside of all of this is that some analysts are forecasting that oil prices will continue to drop.
One of the counter solutions to keep down the prices of oil and the dependency of the USA on foreign markets is to use the nation’s oils reserves, thus cutting down on sweet crude oil in favor of the cheaper heavy crude oil. Certain democrats have already filed a bill to bring this plan into effect. The reason for doing so is to counteract the rising costs of sweet crude oil. This proposal has been tabled before but failed to pass the two chambers. The present Obama administration is in favor of making the shift to keep down oil prices. The revenues from the shift to American Oil will be used to replenish the nation’s reserve and bring it back up to its required levels of 727 million barrels. It is speculated that this shift will make the USA more secure in producing its own oil and becoming less dependent upon other nations. This protectionist move has found many avid supporters.
Though it was expected that after the inflationary prices of last year peaked there would be the deflation of prices. The current drop was never predicted. Oil prices were expected to drop to $80.00 a barrel not $47.00. This turn of events has gotten some governments across the world into taking a serious look at the forecast of oil for industrial nations. The Government of Norway has announced its concerns that its gas and oil companies have not invested in long-term solutions for preservation of the oil refineries in their country.
China is eyeing the current fall in market demands of oil and will buy up as much surplus as they can, despite the fact that sweet crude oil is still dropping. The speculation of course is to sell it higher prices later when prices rise again.
Forecasters see a bottom to this downward spiraling of oil prices with a less volatile price drop lasting for the duration of 2009. The Elliott Wave theory would predict that after the massive decline, the prices would rise again to about $80.00 a barrel and level off there. This forecast is for the next 12 months, however, some speculators say that rising prices perhaps reaching the $200 dollar mark should be expected in the next 5 to 10 year period.