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Strategies & Market Trends : Mish's Global Economic Trend Analysis -- Ignore unavailable to you. Want to Upgrade?

To: Proud Deplorable who wrote (91786)	12/19/2008 3:52:19 PM
From: SouthFloridaGuy	1 Recommendation Read Replies (3) \| Respond to of 116555

I'm thinking world war if we break 24.3742.

To: Proud Deplorable who wrote (91786)	12/19/2008 4:26:17 PM
From: gregor_us	4 Recommendations Read Replies (2) \| Respond to of 116555

In some ways the greater risk would be the collapse of a petro-state that would crash oil production, from that state (you may be thinking this as well). I could see this happening in Nigeria, Venezuela, and less likely would be Russia. In Russia's case, the outward appearance would be one that does not display open chaos, but, you would see oil production and exports decline quickly. It's not unreasonable, for example, to interpret Russia's ability to grow oil production starting in 1998 as a result of their stablization in the post-communists era. Yes, the Russian rouble crisis hurt them in 1998 as did low oil. But it was not as big of an event as the transition earlier in the decade. In the case of VZ and Nigeria, I think you could see actual chaos and revolution, with militant seizure's of oil production. In the case of Nigeria, it gets VERY interesting because you have groups like MEND that already understand marginal pricing and how control of oil and oil sabotage effects prices. If Nigeria descended into chaos from low oil prices, I could see MEND halting oil exports or declaring that Nigeria would only sell oil for 75.00/bbl. On the first day a guy from MEND said something like that he would be laughed at. But after 2 weeks, the world might not be laughing so much. Current oil prices are already a disaster. We're now down at levels where any benefit to global economies is starting to be cancelled out via lost liquidity to the global capital markets, reduced purchasing power by consumers in oil producing nations, destruction of alternatives, and then just plain oil supply destruction especially from non-OPEC. There is going to be hell to pay for current prices no later than 24 months from now, and more likely starting as soon as 6-9 months from now. What people don't understand (not you) is that this is not 1998. This is 2008 and we already established starting 4-5 years ago that the new bbl of oil needs at least 40 dollar oil and more likely 60 dollar oil. Without the new bbl, the natural decline rate of about 6.7% which has been masked by the price deck since 2004 above 40.00 will begin to reassert itself. And oil is not like copper in a warehouse. It does not get turned off and then on again so easily. The world faces two nasty realities now should oil go down further from here. 1. If oil sustains these prices and goes even lower, then, it likely means the world is going to be in something that resembles a depression. 2. Just as you say, low oil prices will hurt so many people on the production side that it could unleash tensions just like high oil can unleash tensions. The best thing for the world would be for oil to move back to 60.00 over the next 8 weeks. That still makes for pretty cheap petrol the world over, and would get some capital flowing. G