jake2011 said:
BiochemAg97 said:
jake2011 said:
If you don't think Saudi could flood the market with oil again and cause the price to drop then you are too optimistic. Not to mention that the developed world is due for a recession (currently second longest recovery in US) which would hurt oil demand. Another significant decline in oil prices would hurt the US shale producers. Not saying it will happen but a double dip in oil prices could definitely happen coinciding with a recession in the U.S.
Saudi can, but would they?
Second longest recovery means due for a recession is an interesting take. We certainly took a long time to get out of the last recession, so are you looking at time from bottom to top, bottom to bottom, or time from recovered to next bottom?
Not saying another recession in the US isn't likely. Fed is raising interest rates into potential weakness, we have an upcoming debt ceiling showdown, and Trump's budget that isn't exactly moving towards a balanced budget. However, the only predictor I would take from the Obama administrations missteps that slowed recovery from the last recession is that the federal government is more likely than not to make more missteps that negatively impact the US economy, regardless of who is in office.
I'm just giving facts. Since World War II, this is the second longest expansion without a recession since the 90s expansion. No one knows when this expansion will end but it is long in the tooth historically speaking. Natural business cycles do exist no matter how much central banks have tried to suppress them the last several years with artificially low rates and QE. There will be unintended consequences from this worldwide monetary experiment. The Fed is behind the curve and is desperately trying to get a few interest rate increases in so they will have some ammo for the next downturn. No one knows exactly what they will be but they probably won't be good and a recession would hurt oil demand. This is coupled with the fact that the US is producing more oil than ever and now has a pro drilling president which will encourage more production down the line. Saudi can produce cheaper than us and a sustained double dip in the oil market would not be good for domestic E&P companies. All of those are potential future negatives for oil prices or at the very least argue against another big rise in oil prices in the near future.
It's true that SA can produce oil at ~$10 a barrel, but they need prices at over $100 to sustain their economy at the standard of living their people are accustomed to. For almost two years, SA has been pulling billions a month out of their national currency reserves to offset their oil revenue losses. That can't go on for much longer without serious consequences, but every time they get prices to move upward, that just encourages idling US fracking to kick into gear and drive supply back up and prices back down. The larger point is SA is an oil dependent economy and we're not so, if anything, low energy prices probably work to stave off recession here.