I’m forecasting a major decline in oil prices in the next decade for two reasons:
1) A major global slowdown and deflationary environment after five years of desperate stimulus, which looks about to fail (duh!).
2) A peak in the very reliable 29 – 30-year Commodity Cycle, that points down into 2023 or so.
Think about the implications of that major decline in prices for the oil-rich nations of the Middle East and Latin America. And think of the effects on emerging countries and commodity exporters in the developed world, like Canada, Australia and New Zealand.
It will be brutal.
Look at oil prices and my rough projections in the chart below…
As you can see, oil prices went from $10 in 1998 to $147 in mid-2008. Then they fell to $32, in just four months, in late 2008.
In my 30 years of studying markets, I’ve never seen a market fall so far so fast. But I wasn’t surprised.
In early 2008, I was warning that speculators in hedge funds and financial institutions were driving the steep surge in oil prices on 30 to 50 times leverage. They were motivated by the Fed’s record low short-term interest rates at the time.
There was just no possible way anything else could push oil prices to the moon and then bring them plummeting back down to earth.
You simply cannot explain such an extreme surge and crash on basic supply and demand terms alone.
It was all about speculation, as were (and are) all of the bubbles since the 2008 crash, thanks to the Fed-manipulated markets.
The thing is: If oil can bubble and burst so quickly, from such extreme leverage and speculation, why can’t it happen to financial and stock markets?
Of course it can. And will.
When markets finally fail, speculators don’t have the time or money to consider longer-term trends and valuations. They have to sell to meet margin requirements.
But here’s the greater insight…
If oil does go back to $10 or $20 a barrel in the next decade, not only will it cause much greater turmoil and economic downturns in the Middle East… a fact supported by my Geopolitical Cycle, which points down from 2001 into 2019… It will also cause many existing energy products and strategies to start failing.
As it is, fracking isn’t generally profitable when oil prices are below $48 (give or take a dollar).
Cheap natural gas may not be the longer-term solution Americans are banking on… as soon as we start exporting, prices will go up, as Rodney discussed last Monday.
Solar and alternative energies have been marginally profitable at best, but would suck wind when oil prices are between $10 and $50 a barrel.
Maybe they’ll come down a declining cost curve to match digital technologies. They haven’t thus far, but they have seen a 50% drop in costs in the last five years. If that continues, then maybe solar and alternative energies could become a contender in the energy race.
But as George Gilder quotes: “Solar is not a digital technology”… at least not yet.
And if battery technologies continue to accelerate in efficiency, then storing solar and alternative energies could become more attractive.
But what if there is a new technology lurking… something like nanotechnology…
What if we could release nanobots into the atmosphere, where they could suck up CO2 from the atmosphere to offset pollution?
What if we could inject nanobots into our blood stream, where they could clean out your arteries?
What if we could task nanobots with creating energy out of thin air? (The Fed would love it because it creates money in the same way.)
Nanotechnology is the last, and slowest, of the new radical technologies to emerge, along with biotech and robotics. But it, and its likely offshoots, should be the most powerful.
Technology always creates new opportunities out of the ashes of failure and challenging times, like periods of war, high inflation or deflation. We saw this in the 1930s and mid-1940s… the late 1960s and early 1980s.
I’m convinced that another such period is ahead…
That we’ll see more radical innovations in energy and everything else in the next decade, during the most challenging part of the economic winter season.
Falling oil prices could put the necessary pressure on such innovations.
But be prepared as deflation ahead stimulates the most radical long-term innovations. We’ll see innovations that could change our energy options, and even our lifespans, more dramatically in the future.
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