“I cannot tell you how long this road shall be, but fear not the obstacles in your path, for fate has vouchsafed your reward.”
Many assumed oil prices would have made a correction by now. Even legendary oil trader T. Boone Pickens said on CNBC last month that he was shorting oil. It was reported his fund, BP Capital Energy Fund, was down 14 percent from the end of 2007.
Most players in the energy trading business are of the mind there will be a strong correction eventually, with one recently telling the Chronicle he expected a pull- back to the $80s in a month or so (at least temporarily).
But the folks at Cambridge Energy Research Associates aren’t expecting it too soon. According to a release the group put out today:
“Oil has become the ‘new gold’–a financial asset in which investors seek refuge as inflation rises and the dollar weakens,” said Daniel Yergin, chairman of CERA and executive vice president of its parent, IHS. “The credit crisis has been fueling the flight to oil and other commodities, and that will last until the dollar strengthens or the recession becomes more pronounced.”
“Today, the falling demand for dollars is just as important as the rising demand for oil in determining the oil price,” said Yergin. “However, when looking back to 1980, today’s high prices also have a ‘back to the future’ quality. Many similar elements that have contributed to the rise in price from $70 last summer to over $100 today were also in play in 1980: high inflation, a rush by financial markets to invest in commodities–gold’s all-time high was in 1980–and tension between the United States and Iran.”
Does that mean we have a repeat of the mid-1980s oil crash coming? Might be a stretch:
” … the biggest offset in the other direction would be the spreading of the economic downturn beyond the United States, which would both weaken demand and strengthen the dollar against other currencies, reversing the upward surge in oil prices.”