Thursday, January 20, 2011

Marc Faber : the dynamics in Oil Market between the demand and the supply look quite promising in the long run

Marc Faber : "....Yes, I am still positive about oil and I am aware that some analysts predict oil prices to drop to $30 and copper prices to drop 70%, but the fact is simply the oil demand now-a-days in emerging economies exceeds for the first time in the history of capitalism. The oil demand in the developed world and this oil demand in emerging economies will continue to go up. So the demand side looks quite strong.

On the other hand, you have prices between $70 and $80 and someone could argue well that that is a very high price and so maybe prices will temporarily decline - that may be the case. But I would like to point out that for any oil company to go and explore and drill for new oil, the oil price has to be around $70. Otherwise, they would not do it because the marginal cost of new production is around this level.

Secondly, unlike say a farmer who harvests, oil is a finite resource in the sense that once you pump it and you burn it, it is no longer there. The farmer can harvest his crop every year again and again and again. In the case of oil, once you pump it, it is gone and you use it. So in most countries, oil production is going down and oil reserves are going down. In other words, the world will hit one day peak oil, the way the US hit peak oil in 1970. So the dynamics between the demand and the supply side look actually quite promising in the long run. ..." via www.economictimes.indiatimes.com

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