Is $20 Oil Believable?
Charles Hugh Smith | Dec 24, 2014 12:14AM ET
The ability of oil exporters to trigger a short-term collapse in price does not automatically translate into an ability to control the financial conflagration such a crash ignites.
My detector went off when two stories with similar headlines touting $20/barrel oil were published on the same day. Color me skeptical, but it's almost as if mere $40/barrel oil is no longer enough to get the blood flowing, so both stories blared the more extreme $20/barrel price point.
h2 Ready for $20 Oil?/h2From Bloomberg View: An analysis of 7 factors that influence oil markets (EIA).
7. Saudi Arabia and other major oil exporters derive a significant percentage of their national incomes (public and private) from investments in the global financial system--the same financial system that is being destabilized by crashing oil prices.
The collapse in collateral and income is not limited to oil exporters with marginally high costs--everyone with a stake in the interconnected global financial system will suffer losses as the financialized-oil trade unwinds violently and unpredictably.
8. The oil exporters' ability to control a global financial meltdown triggered by crashing oil prices is nil.
All of which is to say that the ability of oil exporters to trigger a short-term collapse in price does not automatically translate into an ability to control the financial conflagration, such a crash ignites, or an ability to effortlessly maintain oil at $20/barrel for years. I will have more to report on this topic next week.
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