Ng Weng Hoong

Oil has almost disappeared from the list of things we need to worry about for now. 

Since late last year, demand destruction and supply reduction have been racing to set the direction and pace for the oil markets.

For now, demand destruction is winning, pushing WTI crude prices down to around $40 per barrel. As jobs disappear, consumers are grateful they can at least enjoy the fruits of low energy costs.

For more than nine months last year, WTI held above US$100, peaking at more than $147 in July before it began a quick slide to current levels.

For the first time in more than two decades, world oil demand growth will be negative for two consecutive years, said the wisemen at the IEA, OPEC and the US EIA. The world’s economy will be in its worst shape since World War Two, and could be headed for the worst of the Depression era of the early 1930s. Some 51 million jobs will be lost this year, adding to the deflationary spiral already at work, said the International Labour Organisation.

But oil lurks menacingly in the background.

Longer term, an oil supply shock and the prospects of a return to $100-oil await. In response to the lack of demand and credit, oil companies are sharply reducing capital expenditure that will throttle back supplies for many years to come. When economies rebound, the supply may just not be there to meet demand. A repeat of last year’s sharp run-up in prices could well follow.

Another huge unknown is the impact on the markets from the record amount of money that governments around the world are pumping into the system. The combined size of stimulus budgets now run into trillions of dollars over a few short years, far greater than anything seen in the past, including during wars.

Everyone thinks deflation is the enemy. So, why has gold been surging over the past year? The bellweather of inflation is returning, and giving out a quiet ominous sound.

Money supply is fast building up like raging water behind a broken dam. Instead of flowing through, it is being held up by financial institutions and banks which are more focused on repairing their balance sheets. Paralysed by fear, the banks do nothing when they should be lending out to businesses and consumers as intended by governments. 

When, not if, the torrent of money starts gushing out, the inflationary impact will be massive. Oil at $200 a barrel, when it’s available, would be cheap.

Weng Hoong is the editor at

Read also: Q2 power tariffs lowest since 2005 (Today)



This article was written on 23 February.


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