April 21st, 2016 10:10 AM
Oil is in the middle of one of the largest price fallouts of all time. In fact, we are in the third largest oil fallout of all time when you adjust for inflation, and there is now a discussion about how long this bear market will last. Investors seemed concerned because they remember the financial pain caused by oversupply and lower demand of oil.
Here is a video from Yahoo finance explaining oils third recession.
There are two sides to every coin and one thing that has stayed the same in oil is its volatility.
- There was recently a strike in Saudi Arabia which caused output to drop but that strike is over now.
- Iran was having trouble finding oil tankers to move its oil supply but this is likely a problem Iran will solve easily.
- Sun-Edison the solar company just filed for bankruptcy protection, but technically, the growth of solar power has been consistently positive since 2010 even though the return on investment in many cases can be decades.
- OPEC is expecting oil output to fall over the next year which would help to lower the supply, but shale oil producers have proved they can be extremely resilient while at the same time OPEC seemed less relevant in 2015 than ever before.
- Oil producing countries are becoming more open to production freezes and talks, on the other hand, many countries like Russia are hurting bad due to low prices and are put in a position where negotiations could hurt them even more.
- Wind, wave and hydroelectric generation continue to improve but in many cases are suppressed by the power storage problem. Technology is growing so fast that it is more likely than not, power storage will become more efficient in the process making wind, wave, and solar technology more feasible.
- Falling oil prices are good for American drivers, but when price comes down, the one thing Americans overlook is usually a 401K heavy in the oil and energy sector.
Oil was responsible for the biggest population boom the world has ever seen but the question is, will innovation catch up and when it does, will oil play as big of a role in our society as it does now? If oil can’t continue to play a major role in our modern society, the demand could very well go down and along with it the price it is sold at on the market.
U.S. sources of energy will continue to grow with technology. Geothermal seems like a viable option in many places across the U.S. while wave technology would probably be useful in places like Hawaii and California. Nuclear power is one of the best technologies ever invented but is very dangerous in areas with more frequent and large seismic activity. Coal works extremely well but is dirty and can cause major problems as you see in China. Wind power works well but most people don’t want to live near them because they are very noisy and not necessarily pleasant to look at all the time which creates a problem of transmitting that power long distances. All of these sources of energy threaten the demand of oil. All of these sources of energy have pros and cons.
The fact of the matter is, clean energy is quickly getting better but not there yet and our dependence on oil is crucial for our society. As long as the volatility in oil prices continues to exist, so will its impact on the world’s financial markets and investors.