There’s more than a simple story in Oil prices

The late Dr. Rudiger Dornbusch was an economist at the Massachussets Institute of Technology and was often the cause of headlines for his rather outspoken views on crises in emerging markets, especially as they related to currency exchange rate movements. He was almost alone in predicting the Mexican Peso crisis of 1994 and that too just weeks before the Peso collapsed. Now, I admit to being no better aware of his work today as I was then. But there was a moment of insight when I came upon this quote attributed to him

“A Crisis takes a much longer time coming than you think and then it happens much faster than you would have thought”

That was an “a-ha!” moment and hardly would it have been one if not for the fact that I’d just come out of a 2 hour session reading up on the phenomenal slump in global oil prices. A little backgrounder first – For the past 3 years or so and even before the recent crash, Crude prices were holding up around the $ 100 per barrel mark. It had touched a high of $ 147 in 2008 (only to fall thereafter for a short while) but even at $ 100 per barrel, Oil was considered expensive relative to the $ 20-40 range that persisted for more than a decade. And then, prices started cratering, falling over 48% in 2014 settling in at around $ 48 per barrel as of this writing.

I’ll completely admit to being caught off guard by the crash in prices of this commodity, one about which I certainly have no unique insight. But it is indeed a great place to start thinking of events – related or isolated that may have underpinned the crash and what they might have in store. Of course, I’ll clearly stay away from forecasting about the right price of Oil. For one, even experts aren’t good at predicting prices. Oil markets have a multitude of variables impacting in conjunction –economic, financial markets, geopolitics, technology and geology to cite a just few.

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