Falling oil prices is no mystery… because we have three
major economies – the US ,
Europe and Japan
– reeling under recession… several rounds… And, the two major emerging
economies – INDIA and China – are
also facing overheating… The monetary cycle in the emerging world is trying to
cool down inflation – the down cycle, means less demand… But, low oil-prices will
make the oil more attractive from the view of investment… A lot of investment
should flow to the companies in terms of share-prices, but this is true as long
as investors especially in the stock market view that the prices has hit the
bottom, because it is profitable to invest low and sell high... Oil is a
cartel-market – oligopoly – where firms can manipulate supply to control prices
and profits… Oil prices are an indicator of demand for oil… Oil demand is (ceteris-paribus)
price-inelastic, means movements in prices affect demand little, but if the
prices were low, people will consume more… Its utility is high, therefore its
price is high, low prices will increase demand, but oil companies are
restricting the supply conditions which is likely push prices up in the
next-period… This happens everywhere… Major sectors are mainly
oligopoly-markets, according to the latest Nobel winner in Economics… Oil is
still in demand for reserves… But, investors should be cautious low prices are
not a signal of low demand ahead for too long because “oil is oil” after-all…
It is an opportunity for investment…
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