Beware of Oil Price: Time to Reconsider Your Investments

Recently Goldman Sachs asserted that oil prices are headed for a “super
spike” all the way to US $105 per barrel (recent price around $50) and
everyone thought it was too much stretching of imagination. Yet another
respected group comes out next to assert the same. Raghuram Rajan,
chief economist at the International Monetary Fund (IMF) said,“To the
extent that there is some kind of supply disruption, US$100 per barrel
does not seem outlandish. ... Is it the most likely scenario? I think not
necessarily. It depends how the market evolves.”

In recent times there is voracious demand for oil from places like the US,
China, and burgeoning nations such as India, Brazil, South Korea. This
may easily lead to a supply squeeze and certainly will keep prices high
and volatile until 2030. ... and so $100 may not a be stretch of
imagination after all.

We must know that global oil demand reached 82.4 million barrels per day
(bpd) last year. By 2030, that will leap to 138.5 million bpd.

We must know that the IMF managing director Rodrigo de Rato has
already stated that current high prices could snip 0.25% to 0.5% off global
GDP growth this year.

The US currently accounts for about one quarter of the world’s oil demand.
But by 2030, China will be consuming the same amount. That’s half the
world’s oil production catering to just two countries.

The IMF report says that after non-OPEC oil production has peaked
around 2010, the world will rely more heavily on OPEC to find the extra
capacity. The chances of finding any new major oil reserves are slim at
best - and with demand on OPEC projected to double to 61-74 million bpd
by 2030, prices can only go up.

Americans motorists are expected to use 9.3 million barrels per day this
summer - 1.8% more than last year. This summer’s national average cost
per gallon is expected to be US$2.28. That’s 38 cents higher than last
summer. But many states will endure higher costs than that. In California,
the state average is an ugly US$2.55 per gallon.

All these are bound to affect the economy - here in USA as well as in other
countries. Why are we bringing to you these grim pictures today? We just
want you to be more careful. Do not put much of your savings in
speculative investments. We somehow do not feel comfortable with this
high oil price - it always leads to a chain reaction of price hikes and the
economy evolves into something out of common sense. So, be careful.