Yesterday on the Connie Mack show, retired Oppenheimer fund manager Bill Wilby made a very simple but very smart observation about oil that resonated with me.
Essentially, he said that oil has made its way up to $120 all the while as the U.S. has struggled economically. Not to turn this into a debate about whether there is a recession or not (or how bad or whatever), but clearly the U.S. economy, which consumes about a quarter of the world's oil supply, has not been going great guns - yet oil has rocketed higher.
Wilby says that when the U.S. does get back on track it could push oil up to $200 per barrel. I'm not terribly concerned about getting to the figure or not, but that big of a move in the next few years would, I have to think, create problems of a harsher magnitude than we think we have now.
In my opinion it seems fairly obvious that China and India's demand will continue to increase and with 2-2.5 billion people combined, even small increases in demand can matter. Additionally, there are a bunch of countries with 70-120 million people that are in a little earlier stage in their development that will also consume more oil over the course of the next decade...
The one part of Wilby's comment I can't reconcile is that from here, U.S. GDP growth really taking off with oil where it is or even $15 lower seems like a big headwind. To be clear, I am saying that if we technically go into a recession and oil stays up around this level, when we come out of the recession to start the next expansion it might be a little more sluggish than normal. So maybe this removes the nearer-term notion of $200, but still maintains a path for higher prices from here as the decade winds down.
Essentially, he said that oil has made its way up to $120 all the while as the U.S. has struggled economically. Not to turn this into a debate about whether there is a recession or not (or how bad or whatever), but clearly the U.S. economy, which consumes about a quarter of the world's oil supply, has not been going great guns - yet oil has rocketed higher.
Wilby says that when the U.S. does get back on track it could push oil up to $200 per barrel. I'm not terribly concerned about getting to the figure or not, but that big of a move in the next few years would, I have to think, create problems of a harsher magnitude than we think we have now.
In my opinion it seems fairly obvious that China and India's demand will continue to increase and with 2-2.5 billion people combined, even small increases in demand can matter. Additionally, there are a bunch of countries with 70-120 million people that are in a little earlier stage in their development that will also consume more oil over the course of the next decade...
The one part of Wilby's comment I can't reconcile is that from here, U.S. GDP growth really taking off with oil where it is or even $15 lower seems like a big headwind. To be clear, I am saying that if we technically go into a recession and oil stays up around this level, when we come out of the recession to start the next expansion it might be a little more sluggish than normal. So maybe this removes the nearer-term notion of $200, but still maintains a path for higher prices from here as the decade winds down.
