Quote:
Originally Posted by Syndrome
Others say it is due to the global economic malaise which has reduced demand for the stuff.
Who is correct?
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Heads up Syndrome, it's not just oil; it's the entire commodity complex. Watch for the Fed raising (or chickening out?) interest rates this coming week. If so it will be the first time in 7 or 8 years. Responding to the GFC, rates were dropped to crazy lows which injected one final boom into the commodity complex and emerging markets. Capital was fundamentally mispriced by the central banks: if left to the markets interest rates would have been way higher. Should the Fed raise, all those who took on way too much debt, or producers who cannot now service payments as of oil/copper/iron ore prices being smashed, are going to be under acute stress. Already, junk bonds are beginning to blow up - commodities first this time - while in 2007 it was tranches of home loans with very dubious lending standards. As then, this is spreading to other sectors of corporate debt.
Geopolitically, the Saudi's pumped in the 1980's with the aim of reducing the revenue of the USSR just as Reagan greatly increased US arms spending (500 ship navy and re-activation of Iowa class battleships, for eg) - and history would say that worked. Same again? Or more like the 1930's with the rise of trade blocs, currency wars, embargoes, and proxy wars like the Spanish Civil War?