Some analysts have estimated that the breaking point for oil is much higher than today’s prices, however, Nobuo Tanaka, executive director of the International Energy Agency says current prices are much closer to causing serious economic decline than most assume.  In an interview with CNBC this morning Tanaka says supplies are plentiful, however, Libya will cause disruptions in the near-term.  Tanaka says $100 oil is not sustainable and will contribute negatively to the economy and could actually cause a repeat of 2008:

“If the $100 barrel is continued in 2011 the burden of oil to the global economy is as bad as 2008 and remember – 2008 was the crisis year….It is really serious today….If maintained (the burden is as bad as $150 in 2008)…If prices remain at $100…continuing that level of price is very, very bad to the global economy. Especially to the emerging economies like India, China, Africa, so they have much more serious problem,”

Source: CNBC


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Cullen Roche

Mr. Roche is the Founder of Orcam Financial Group, LLC. Orcam is a financial services firm offering research, private advisory, institutional consulting and educational services.

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  • ObaMao

    Add food price spikes to the mix ushering in instabilities, riots and global economy slow downs. Add currency and trade wars to this toxic mix. We’re only into 2nd month of the year…

  • Derfem

    The “good” news in this mess is that the agri/soft complex is falling (hard) too. This will maybe ease inflationary pressure in EM and allow some more loose monetary policies in the following months. Let’s see (later).

  • Everyman

    How much “loser” can so called economic policy get? Good lord it is a train wreck now and I call the expanse of the Fed’s balance sheet very loose!

    This is band and will end bad on all account. $100 oil makes EVERYTHING cost more from the plastic it is stored shipped in to the gas it takes to ship to the pieces of plastic we use to pay for it representing “dollars”.

    The pesticides and fertilizers are most all made for oil.

    The speculators of oil move in this crap will go to $150 if they see any other country even twitch.

    Then it is “G’night Gracie”!

    Oil is everything and it is going UP in price and removes money from the BS so called “earnings” that these POS corps are posting. It also reduces GDP across the globe and it is worse in other countries than it is here.

    The economic fundamentals are not “strong” by any measure and the numbers we get from the Gov and “economists” are all WRONG and constantly get “Revised” in a negative direction after the “positive” “Better than expected”, GREEN SHOOTS crap from idiots like Cramer, Kudlow and the rest of the CNBS crew.

    When this is all said and done there are going to be a lot of “economic experts” beaten to a bloody pulp for the lies and misrepresentations of this economy to the General Population called “CITIZENS”.

    The messengers usually get the worst of it before the conflict spreads.

  • Mediocritas

    Sorry for being off-topic, but an odd thought just popped into my head…

    What if the run-up in commodity prices is actually being assisted by implementation of new rules to limit position sizes? This would imply that the positions most effected are short positions, creating a buying demand required to reduce position sizes.

    There is an incentive for large financial entities to artificially suppress commodity prices through maintenance very large short positions that is best understood by considering the profitable downstream effects of low commodity prices. Investing in companies that use commodities to produce a value-added product (that cascades to more value-adding) is far more profitable than investing in the commodity itself.

    It can easily be justified to take a small portion of the profits made being long the downstream pipeline and redirect it to take a hit being short commodities. There is no reason for investment banks to change this situation unless they are forced to by regulation or the downstream economic environment is utterly ruined. If it’s the latter then investing in commodities makes no sense because there will be no demand.