Friday, August 16, 2013

Changing trajectory

Just a quick one today as I'm seriously running out of things to say. I've written about most of the important current trends that will effect Canada and their paths have already been set and thus unless something changes the trajectory the events already set will play out. There is one area where the trajectory is changing and that's in regard to oil price and availability.

We are at a point now where oil will make a major break either up or back down depending on events though right now I would say up is looking a lot more likely which is in contradiction to my original forecast from the beginning of the year which predicted oil would top out at $110.

WTI has been bouncing between 105 and 109 for the last little while on target with my forecast (though by about a month later than I expected). Originally I had expected oil to now begin retreating as the price of oil began eating into profits which we are seeing now in weaker consumer confidence, retail sales and industrial numbers. However despite this several factors are keeping the price high.

U.S. crude inventories have fallen more than expected at the same time that a lot of Egypt's production is about to be put on hold, and Libya's oil exports are currently disabled due to protestors shutting down their sea ports and new protests are brewing in Saudi Arabia.

The combination of these events sets the table for the possibility that oil may exceed $110 with enough force to go against the resistance of slowing global economic growth. If this occurs we will be looking at the setup for the next major financial crash as affordability goes completely out the window. The continued trend of rising interest rates despite central bank intervention to keep them low, moderately high unemployment, and rising energy costs paint a pretty grim picture for anyone heavily indebted at the moment (such as the Canadian consumer).

Of course Canada will likely celebrate the rise in oil price as a sign of "boom times ahead" but don't fall into this thought trap as the succeeding crash will be changing that tune quite quickly. Remember back in 2008 that oil dropped all the way from $147 to $40 when demand collapsed, the higher we go the further we'll fall. The difference being this time Canada's governments and people are already heavily indebted from the last round. We haven't had our financial problems yet! EVERYTHING we've been feeling thus far are effects of the American and European collapses! I can't stress this enough. The external forces have been so strong that we've been left in a fairly weak position to withstand our own collapse. I anticipate that Canada's "weak unstable banking system" is going to be surprising a lot of Canadians; hopefully you're not one of them. :)


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Richard Fantin is a self-taught software developer who has mostly throughout his career focused on financial applications and high frequency trading. He currently works for eQube gaming systems.

Nazayh Zanidean is a Project Coordinator for a mid-sized construction contractor in Calgary, Alberta. He enjoys writing as a hobby on topics that include foreign policy, international human rights, security and systemic media bias.

3 comments:

  1. And on that jovial note, Richard, have a great weekend.

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