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Forecasts
The Oil Forecast
February 25, 2011
My logic: the recession reduces demand but only temporarily. Recovery from recessions is uneven globally. Some regions recover months, perhaps even years before others. A robust economy in Asia and to a lesser extent in Latin America will create demand that will drive prices up despite a slight fall in use in the U.S. and the EU.
Speculation or unexpected geopolitical events – “triggers” – will create volatility. Speculators will enter the market on supply shortages. No regulating body can keep them away from the opportunity to make money.
My forecast from mid-2008 forward: 75 to 85% confidence that an oil price spike and permanent plateau above $100/barrel will come sometime in the 2011-2014 time frame.
It’s been of interest to clients in, well, almost every field. Because as one CEO said to me on being asked what energy prices affect, “Everything!”
As the economic recovery has forged ahead strongly almost everywhere except the North Atlantic the price of a barrel of oil has risen back through the $50, $70, then $90 levels. Now the unprecedented events in the Middle East have taken Brent futures over $111. West Texas will follow.
Will it stay there? Of course it depends on a complex array of factors. Economic effects, how high the price spikes, volatility, whether the Saudi’s can really make up most of the shortfalls, refining bottlenecks, and more. In the weeks ahead I’ll place more information here on the implications of this important trend.
In the meantime I’m getting a lot of queries from clients who quickly remember my forecasts and are running through their Plan B strategies to react to the development or are confident because they planned for the high probability of this years ago.
Tracking, January 2011
January 13, 2011
A new year and new blips on the radar screen in our practice. I post items here from time to time that we’re watching because of our scanning, clients, or upcoming engagements.
Food Prices - for well over two years we’ve tracked a steady uptick in worldwide food prices. One visual element in our briefings and conference presentations is the UN’s index of world prices which shows a steady climb that now has exceeded the “trigger point” of 2007-08.
What do we mean by “trigger point?” When riots occur in less developed nations over food. Large portions of the population in these countries spend 50% or more of their incomes on food. This is a ticking time bomb that has been known to overthrow governments and even cause wars.
The “North Atlantic Recession” - come on, it is no longer a global recession or even the “Great Recession” when you view it from Brazil, India, or China. It’s the recession that still either cripples or impedes the US and the EU. Even Canada is out and expanding.
The “Employment Follies” - how badly can a government manipulate statistics? Just look at the jobless in America. OK, every governing administration wants to make the news better but creating 65,000 jobs in a month when it’s going to take over a quarter million new jobs every 30 days to get back to something like 5% unemployment is not good news. Especially when most of the jobs are in hotels, restaurant kitchens, or temporary services. Employment is a key trend for America’s return to economic health. We should be realistic about it.
Food Prices - for well over two years we’ve tracked a steady uptick in worldwide food prices. One visual element in our briefings and conference presentations is the UN’s index of world prices which shows a steady climb that now has exceeded the “trigger point” of 2007-08.
What do we mean by “trigger point?” When riots occur in less developed nations over food. Large portions of the population in these countries spend 50% or more of their incomes on food. This is a ticking time bomb that has been known to overthrow governments and even cause wars.
The “North Atlantic Recession” - come on, it is no longer a global recession or even the “Great Recession” when you view it from Brazil, India, or China. It’s the recession that still either cripples or impedes the US and the EU. Even Canada is out and expanding.
The “Employment Follies” - how badly can a government manipulate statistics? Just look at the jobless in America. OK, every governing administration wants to make the news better but creating 65,000 jobs in a month when it’s going to take over a quarter million new jobs every 30 days to get back to something like 5% unemployment is not good news. Especially when most of the jobs are in hotels, restaurant kitchens, or temporary services. Employment is a key trend for America’s return to economic health. We should be realistic about it.