By now investors should be used to this pattern. They should know that unless the demand side shows renewed signs of strength, the supply story will be the same. Oil will come up to or near the $50 USD per barrel mark, and will come down thereafter until it hits the low $40’s. This could serve the interests of a few short-sellers who can play around with their put and call options in the short term and profit. For oil producers and economies that depend on oil revenue, this just means that there is more pain to come.
Developed countries like Canada, Australia and even Russia, could see the see-sawing game affect their balance of payments. In the case of Russia, it will affect its budgetary calculations even more than in the other two cases. In the case of countries like Venezuela, which depend almost solely on oil and have a sizeable population, the economic pain could generate further unrest, instability and even violence.
This is the most dangerous part of the oil downside, in terms of the general health of the world’s economy. The more prices see-saw, and stay subdued, the harder it will be to reactivate global demand from many countries that rely on imports from countries such as China. For now, the situation is somewhat stable, since the radical price fluctuations seem to be over. Nevertheless, the period following the collapse of oil prices in 2014, is showing all of us how important this controversial industry is for the overall health of the global economy. As long as oil keeps see-sawing between $40 USD and $50 USD per barrel, global growth prospects will remain weak.
