How Low Can It Go? Oil Below $112

In mid-day trading, oil is down another $3+ to below $112 as concerns mount about the global economic slowdown.

The continued drop in oil, the recent strengthening of the dollar, the negative Eurozone GDP growth (-0.2% in Q2), Japan’s negative “growth” and China’s slowing economy all point to one thing: a global recession.

So how low can oil go? It depends how bad the economy gets. Given that oil was at $70 a year ago and $50 a couple of years before that, there’s no reason it can’t go back there: Demand has increased, yes, but not enough that a couple of bad years for the global economy and some increased supply couldn’t reverse the entire super-spike.

On the other hand, if Russia annexes Georgia (forcing a US response), there are more supply disruptions, and/or falling oil prices cause the US to immediately revert to old habits again, oil could resume its skyward trend. Even with a 25% collapse from the peak, oil is still higher than it was four months ago and higher than it has ever been before in recent economic history (even after adjusting for inflation).

So that leaves us with two likely world scenarios for the upcoming months:

  1. A resilient economy that sends oil back to the stratosphere
  2. A tanking economy that may let us see sub-$100 oil once again

Place your bets.

See Also:
As Expected, Global Economy Heading Into Tank
Stock Market Misunderestimating Russia Threat



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