Sunday, September 24, 2006

Self-defeating prediction

I am confidently predicting that on this day in 2008, the price of petrol will be under $1.00 Au per litre in Townsville. Much against the alarmists which talk about the end of big oil etc. etc., it seems to me the world will be drowning in the stuff soon enough. From an economic perspective, as is the way with these things, the price has severely overshot its long term natural level. Refining capacity, oil stocks and strategic reserves are building much faster than usage is increasing. Once this process has caught up to the surprise surge in demand, even a slight flattening of this surge will result in big drops in the oil price. My speculation is relying on my theory that the whole thing has been triggered by a demographic "one off" in China. The dependancy rate there has become extremely low and is still dropping. This rate will suddenly turn and increase sharply, never to get anywhere near as low again. This is due to happen within the next couple of years, and the flow-on effects will particularly influence investment markedly. I titled this entry self-defeating because if all oil investors read this and agreed with me, they would cut back investment now and my prediction would never come true.

5 comments:

Dr. Clam said...

The dependency ratio is at an all time low because of low numbers of children but the old folks not old enough to be dependent yet, correct?

Marco said...

Yes, and there is parallels in many developed and tigerish economies since the second world war. Japan is a case in point with stagnation coinciding with the end of the demographic one off. Also more recently, Ireland has reached the end of its demographic one off and will struggle to sustain any growth rates at all. Countries in which it will be less noticeable are ones that have had more consistent birth and death rates (or only very gradual transitions to an ageing population)

TheGroose said...

You could always try trading in oil futures or purchasing CFD's in oil companies. That way you can combine oil wisdom with an investment plan and have fun doing it :-)

Marco said...

I have thought about that, but the financial instruments required to making money on longer term or demographic stagnation principles are not easily accessible, compared to say, buying stock that you know is going to rise. I would like to look for stocks that would benefit from long term lower prices, like transport stocks etc.

Anonymous said...

Today is 7 May 2008.

Given that the price is already in the $1.40 to $1.50 range and the price of oil has tipped US$120/barrel, I'd say that the alarmists win.