Some degree of sanity is seemingly dawning (even if ephemerally) on the oil price market. The price of crude oil fell further on Friday, 03 July, over concerns about a lingering recession in the world’s largest economy. According to the Bureau of Labor Statistics, the United States economy shed an additional 467,000 jobs last month while unemployment rose to 9.5%, the highest in 26 years, prompting worries that all measures are failing to stem the recession tide.
Recent oil price surges have in the main, held no market fundamental support. The massive supply overhang, weak demand and signs of deepening (or at best lingering) economic recession, do not support any price surge. The disclosure that the record high price for 2009 set a few days ago, was the handiwork of a rogue trader, further bolsters this argument.
The media has been awash with reports of a looming oil price shock (when the global economy begins to recover from the current recession) arising from low capital investment in oil and gas. Such low capex reports have been shown to be exaggerated.
In a recent post l argued that even if there were an oil price shock on global economic rebound, it is, save for extenuating circumstances (war or equivalent, etc), unlikely to hold any market fundamental support.