Oil Continued

Now with the price of Oil plummeting lets look at how this is happening and the reasons behind it.

Obviously the oil bubble has burst and the claims that the production costs of oil is 70$ has been affirmed at least for now.Where it may go is still a big question?
Now as for my theory about vested interests wanting that oil remains above 100$ still holds since they just did an oil production cut of 1.5 million barrels a day out of the arnd 86-87 million barrels a day used by the world.Though it could not stop the slide is temporary since it is happening due to the financial crisis across the world.It still has to hit India and Asia though warning bells have begun ringing in the form of stock market crashes.We still have to see it in Asia is My Point.

The point to be noted is that with the price of oil above 100$ ,trying for new oil reserves/exploration/alternative means of energy all started to look feasible which has not been the case in past around 10-15 years.Oil Shales in Canada and other alternative energy means cannot be supported with price of oil under $80 to be most conservative (maybe even $100 would be a good estimate.)
So the prices of Oil was driven down so that all these projects which had been started over past some time start to look unfeasible and economically inefficient.This could have been done by vested interests.They would pick it up again above 100 and then next time on these new projects would come only if the price stabilizes above $120 for longer period of time.After the mauling in all the financial streets,they have run out of steam and money to finance themselves.

Another point is that the recent anouncements of Opec production cut is meant more for US and other countries who support and finance Israel for Palestine.Arab has long hated US role in Palestine and it has I think done a deal with non pro-Israel nations that it will continue to supply Oil to them as it is.The production cut is more of a supply cut for US and Co. and the rest will be business as usual.Moreover the remaining production they wil continue to supply to other countries.Also this gives them the dual benefit of price rise( since US is a big consumer of Oil and supply cut to them would affect the prices in the long run) as also it gives US the thumbs down in Israel.

Now coming back to the downturn awaited in India (and I mean Asia in general).It will affect our serice driven economy and the production driven economies of the rest of the Asia(which supplies mostly to US and have low domestic consumption) and hence then with less people to spend on other stuff ,will affect the rest of the Economy.

I also think that rate cuts et al will not have the desired affect since that will only drive all the money from the banks back to stashing of cash and not make people invest in business.What is needed is a stimulus and confidence in economy and not just mere rate cuts.

Lets hope the recession turns from here.