Oil bruised after a one-two punch

THINK OUTSIDE THE BOX:  With stock markets trying to find their feet, oil prices could continue to move up and down dramatically.

Back in the late spring, The Owl reported that both oil prices and optimism appeared to be mounting; and indeed they were. Today, the story is a little different.

OPEC’s decision  to not cut production at the end of last year and the United States’ ramping up of oil production dealt the first incisive punch to oil prices. But like a good fighter, oil managed to shake the cobwebs and gained a little more courage. But a second blow has recently hit oil. Reductions to global growth prospects, sinking global demand and turbulence in financial markets have caused the price of a barrel to fall. A one-two punch.

We last reported in May that prices were down 36 per cent, but about four months later, the price of oil looks a little worse for wear caused by excess supply and reduced demand. The North American benchmark price last closed at around $US 38 per barrel, or 60 per cent lower than at the start of oil’s price fall (September 2014).  The last time oil prices were this low was back in 2008.

With stock markets trying to find their feet, oil prices could continue to move up and down dramatically. However, it’s important to remember these are short term fluctuations and we’re in it for the long haul. Gazing out into the long-term means that excessive daily price movements should remain a blip on our radar.

Nick Ford • Economist             August 25, 2015

 

 

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