If one number determines the fate of the world economy, it is the
price of a barrel of oil. Every global recession since 1970 has been
preceded by at least a doubling of the oil price, and every time the oil
price has fallen by half and stayed down for six months or so, a major
acceleration of global growth has followed.
Having fallen from $100 to $50, the oil price is now hovering at
exactly this critical level. So should we expect $50 to be the floor or
the ceiling of the new trading range for oil?
Most analysts still see $50 as a floor – or even a springboard,
because positioning in the futures market suggests expectations of a
fairly quick rebound to $70 or $80. But economics and history suggest
that today’s price should be viewed as a probable ceiling for a much
lower trading range, which may stretch all the way down toward $20.
To see why, first consider the ideological irony at the heart of
today’s energy economics. The oil market has always been marked by a
struggle between monopoly and competition. But what most Western
commentators refuse to acknowledge is that the champion of competition
nowadays is Saudi Arabia, while the freedom-loving oilmen of Texas are
praying for OPEC to reassert its monopoly power.
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