@MoneySavingExp Fuel price’s likely to drop!

Extract from Fullermoney newsletter, basically says to expect fuel prices to drop.

One of   the great pleasures in life for economists is watching bubbles burst.

First   the speculative air is pumped in just beyond the point of reason.

There is always   a trader willing to say that a tulip bulb will soon be worth a million guilders;   an investment bank ready to predict $200 oil prices by the end of the year.  

There is always a looming war or a potential harvest failure to add spurious   justification. But the end is inevitably the same. The bubble bursts.  

That is what is happening now in the energy market. Sometimes the bubble deflates   rapidly, as with the US natural gas price – now at a 10-year low of less than   $2 per mmbtu. In other cases the air escapes slowly. That is what has been happening   to the oil price since the announcement of a modest fall in Chinese imports.  

Once the fall begins it tends to continue.

European gas prices are also declining   and utilities tied into long-term contracts are struggling to renegotiate terms.  

If the Japanese succeed in restoring some nuclear power capacity the Asia gas   market will follow the downward trend. Simultaneously the important report from   the UK’s energy department has reopened the door to shale gas development in   Britain and perhaps across Europe.  

The oil market is also set for a serious adjustment. Iran has backed off from   its threats to close the Strait of Hormuz, and another complex negotiating process   has begun in Istanbul to find a way in which Israel and Iran can step back from   a confrontation neither could win.

The sanctions on Iranian oil exports are   an important bargaining chip in these negotiations.

If there is any progress,   Iranian production will come back on to the market.

My (Fullermoney) view – There are a number  of interesting points in this article that I will comment on but it is not far off the Fullermoney view, although as bubbles go, I would say that oil has been  a small one recently.

However, there has certainly been an ‘Iran premium’ in   the market which a number of commentators have estimated at about $20.

That   sounds about right to me in terms of the more expensive Brent  benchmark price which does not reflect the shale (tight oil) impact that we   see in the US WTI price.

I have   often   mentioned in recent months that Brent prices were most likely overstating  the risk of an air strike against Iran’s nuclear facilities.

Nevertheless the  price is what it is and it has been a headwind for the global economy as we  also saw at this time last year.

 

Advertisements

Tags: , , ,

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s


%d bloggers like this: