$50 Oil is here....

and is very likely to overshoot on the downside. Is $40 or even $30 possible. Why not? If 3 months ago anyone questioned that oil could go below $60, he or she was termed fool, like several posters here. Too bad people have such short memories. Even the champions of doom and gloom such as Garth Turner buys into 'higher long term energy costs' while we are in an ocean of deflation. But just yesterday, the DOT reported that the number of miles driven has fallen by around 5 per cent in the US in September. People are now saying, "anytime you drive your vehicle and it's not for work, you are wasting money." Ouch. With the prospect of a multi year bust and double digit unemployment, where is the demand for oil going to come from? The Chindia bull is dead for the moment, but who knows.
In the mean time, our province faces more fundamental problems- What will Alberta do once the oil sands engine is cold? Not much. All the diversification attempts have come to a naught with a merciless exodus given to all non oil and gas companies. Intutit, Dell, TD Call Center and many more have left the province(or even Canada).
Now that the bubble inflated by artificial supply of credit and fake demand for worldwide commodities has burst, are we going to revert to our core competency of selling cheap manufactured goods to the US, attracting US tourists based on a 70 cent loonie and handing out film tax credits? It should not be outside the realm of possiblitiy. It was after all only 4 short years ago that Dell when opening its Edmonton location even refused to pay for training its new recruits. Such was the state of desperation for new jobs in Edmonton. Any big corporation will now be extremely reluctant to take advantage of massive unemployment and cheap loonie anywhere in Alberta after our success in driving out most non-energy companies out of here. And for that, the primary reason was wage inflation driven by high cost of living created primarily by the high cost of housing. Perhaps Alberta government should do something about reining in the speculation in Real estate based on subsidized mortgage products.

Inflation or Deflation

The steep fall in commodity prices in last few days, especially for gold and oil was not entirely expected. At least by the inflationists. Is it possible that this is the beginning of the unwinding of the ‘great commodity bubble?’

The simple scenario could play out this way- If we get deflation instead of inflation, commodities are going to fall. It may take a while for them to unwind, but they will fall. How fast and how hard is difficult to say.

On the other hand, commodities will be a good play if inflation or inflation expectations remain high. This has been the primary reason for recent run up in gold, oil and other commodities.

Should the US enter a severe recession, the demand for oil is likely to fall quite a bit (the 3.2 per cent YOY fall is an example). The BRIC economies have been around for a long time and still consume less than the US.

What will happen to the real estate prices here if the only support Alberta prices have got disappears? The answer may not be pretty for some people. Especially those who are leveraged and have huge debts. We are in uncertain times, and no body really knows how things are going to unfold in the coming weeks and months.

What do you think is the oil price above which ‘nothing terrible’ will happen here? What is the threshold below which we could be in the same territory as the last bust?