The
conventional wisdom of the moment is that a weakening global economy
will push the cost of commodities such as oil down as demand stagnates.
This makes perfect sense in terms of physical supply and demand, but
this ignores the consequences of financial demand and capital flows. The total financial wealth sloshing around the world is approximately $160 trillion.
If some relatively modest percentage of this money enters the commodity
sector (and more specifically, oil) as a low-risk opportunity, this
flow would drive the price of oil higher on its own, regardless of
end-user demand and deflationary forces. If we grasp that financial demand is equivalent to end-user demand, we understand why oil could climb to $125/barrel or even higher despite a physical surplus.(more)Please share this article
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