Oil at 300 – Can or Can’t

More than focusing whether Oil at 300 can’t happen, the society should prepare for a scenario “what if it can happen?”

I made a technical and time cycle case for Oil’s last dip to 60 before it heads to 300, suggesting that the commodity cycle is 30 years long and considering commodities worldwide bottomed around 2000, a continued upside of commodities including Oil till 2015 is a possibility. My observations were also in the context of a previous forecast, “The Oil rocket” published globally on 12 May 2008 both on print and the world wide web. In that feature, I suggested that after Oil falls to sub 70 levels (from then extremes at 125), it should head above 300.
In May 2008, Oil was so much on market’s mind that I got emails regarding Oil hijacking retirement plans and top brokers soliciting buying call options. That was then in May 2008. Oil dropped to 39 and the second part of the forecast started to unfold from Dec 2008. Now that market woke up to the reality that pension plans got disrupted by sovereign risk rather than Oil, brokers might have another strategy on Oil. In the new context defending a May 2008 forecast is not easy. The technical reasons I gave had little penetration as the web community bombarded the forecast. So I will stick to plain speak to address the queries of the nonbelieving majority.
The story that above 125 dollars a barrel renewables get attractive quoted 50 dollars as the inflection point a few months back. The question here is how can you quantify that 300 can’t happen before renewables are embraced by the society? Thinking green does not just need Oil prices to go up, it needs an extreme pain when electricity bills start to matter. And that may not happen till the society pays multiple times of what it pays for Oil today. It might be only then that we the investors might really care about the global warming and have a desire to save the world. It will be only then we might think of switching off the LED of our computer screen and teach our children about energy conservation.
Thinking that an article appearing in media regarding Oil 300 is an attempt to scare the society and make money is a naive self-concocted conspiracy theory. Institutions don’t make money like this and if only society was that easy to scare. There have been speculators in war times. People don’t stop speculating in war times, what fear are we speaking about here when all that matters to us as a society is to make a bit more profit.
Another reason sighted against OIL 300 is the US energy self-sufficiency. Who judges the time till the US becomes energy self-sufficient? It took more than a few weeks to plug the Oil leak. Estimating time is hard. And a lot can happen till efficiencies come in. Regarding the death of Oil at 300, one should speak to Theodore Modis (Futurologist). Assets don’t die they just become unpopular. How can you quantify when Oil become unpopular? And why can’t it go to 300 before it starts to get unpopular? In an old time, Oil 40 “scared” everybody, and then the scare shifted to “Oil 100”. Why can’t it go to “Oil 300 scare”? Oil 300 is just a small aspect in the larger picture.
Oil 300 evokes more ideas about some life style discomfort than about its impact on the society. Only a few might understand that Oil 300 could happen to owe to a war like situation? But why and when should a war happen? These are more uncomfortable questions a society may not want to ask or address. If you read cycles literature there are studies on war cycles too.
Another idea against Oil 300 is that it can’t happen because of demand and supply. Demand and supply are an illusion. Gold does not just move based on demand and supply of gold. It also moves in anticipation of markets across time frames, shorter to larger. Gold also moves up in greed and fear. How do you quantify what’s driving gold, greed of fear? Behavioral finance suggests markets don’t know how to subtract and add. A majority assigns narrow intervals when it comes to targets. So how can we measure demand and supply? And how is Oil different from gold anyway?
The real debate is to think what if Oil 300 was probable. Rather than focusing on Oil 300 can’t happen. Credit crisis can’t happen. Bankruptcies can’t happen. Emerging markets correcting 60% can’t happen. The multi-decade rise in interest rates can’t happen. Food prices rise can’t happen. Inflation can’t happen. Oil 300 or Gold 3000 can’t happen. Illusions and contesting forecasts are easy, studying 3000 years of interest rate history, studying inflation cycles, proving cyclicality as a mathematical science and separating the probable from the possible very tough.