What should be expected for the price of oil?
*Barron's, by Gene Epstein, July 4, 2011:
''Get Ready for $150 Oil
The U.S. economy is never completely ready for higher oil prices, which
is one reason they take a nasty economic toll when they arrive.
But readiness can be enhanced by awareness of the likely outlook for
petroleum prices -- and the outlook today is relatively grim, although
probably not disastrous.
Despite the recent 20% decline from April highs, new highs on crude,
heating oil, diesel fuel, jet fuel and gasoline seem likely over the
next 12 months. Following some further easing over the summer,
the second leg of the long-term bull market in petroleum -- the first
occurred in 2007-08 -- probably will begin this fall.
As oil producers' spare capacity gradually declines to worrisome
levels, the average monthly price could reach a record $150 per barrel
by next spring, with spikes to $165 or $170. With this,
$4.50-a-gallon gasoline will become the norm. That will put a
huge dent in consumer wallets, while ramping up the desirability of
fuel-efficient cars.
The continued short-term easing of oil prices should benefit the
economy over the summer, only to exact a much larger payback
later. The projected oil shock of spring 2012 will hurt the
economic expansion, but not kill it, pruning about 1.5 percentage
points from quarterly growth in real gross domestic product.
While painful, this forecast isn't quite as extreme as it might
appear. Short-lived price spikes and troughs make for frenzied
headlines in newspapers and on the Internet as well as for hysterical
talking heads on radio and TV, but what matters for the economy are
average prices over at least a few months. Barron's estimates that the
effective price of crude was about $110 in this year's second quarter,
which just ended. So a projected increase to $150 by the second
quarter of next year assumes a rise of $40. Oil is likely to stay
at $150 for several months, before the promise of greater supply brings
a gradual easing.''
*This information is solely a highlight of the opinion of a third-party publication and is incomplete. Please subscribe to this publication for the full and timely opinion of the author and call a Monex Account Representative for any additional up-to-date information. This is not an offer to buy or sell precious metals. Investors should obtain advice based on their own individual circumstances and understand the risk before making any investment decision.
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