Alex_G

$200 Oil: Before Decade's End, Not Year's

This article would be correct if all of the assumptions hold true. As with many other oil bulls, the author assumes many things, such as:

1)China will grow at the rate it has grown the last 5 years. This will not happen. They will contract to some degree, maybe even recess. The 60% drop in their stock market is telling us something.
2)China has an insatiable appetite for oil at any price. China is very inefficient in converting energy use into GDP, the USA being 4x and Japan being 9x as efficient. Right now, their government is subsidizing energy costs, to what degree is anyones guess. The net effect of this is transferring a portion of their foreign reserves to energy exporters.

High energy prices will affect China far more than the US or Europe. Manufacturing based economies are more energy intensive. As long as oil and coal prices stay at sustained levels, I believe this stock market will face continued downward pressure.
3) $4 gas is the magical number where US demand destruction begins. We actually had more demand destruction in the 1st quarter, when gas was far cheaper than that.

The bulk of the 2nd quarter run up in oil prices was not due to demand exceeding supply, but speculators running up prices. Oil shills like Goldman and Morgan saw to that. In the current economic conditions, oil over $100 is not economically viable. Economic conditions would have to change drastically over the next 2 years for oil to reach $200.