Clifford Krauss
Oil prices have plunged last week like they haven?t since the fall of 2008, when Lehman Brothers failed and a hurricane closed so many refineries that demand for crude dried up for more than a week.
Suddenly the price of crude is below $100 a barrel for the first time in two months, and experts say that gasoline prices will slide down. Time to celebrate? Hardly. Plenty of energy experts and economists say that oil prices are bound to rebound again because the fundamentals of the global market have not changed very much.
?There?s a herd instinct, but this is a correction and not a shift in trend,? said Allen Sinai, chief global economist and president of Decision Economics, who characterised the drop in commodity prices this week as ?a temporary and transitory reversal.?
Continuing turmoil in the West Asia threatens oil fields, ports and strategic waterways like the Suez Canal. OPEC members seem to like the higher prices, with Saudi Arabia recently cutting production.
Libya, which produces some of the finest crude that is not easily replaced, remains out of global market. Even if the civil war there were to end tomorrow, some oil terminals and fields have been damaged and may take months to repair.
Meanwhile, on the demand side, the economies of China, India and much of the developing world continue to grow. Their emerging middle classes are adding thousands of new cars to the world fleet every week. Japanese oil demand has remained remarkably resilient in recent weeks despite the earthquake and economic slowdown there. And the coming recovery is only going to increase oil demand.
?After an incredible run straight up, this is a correction on concerns about world economic growth,? Sinai cautioned. ?Nothing has changed, except psychology and taking profits.? So enjoy those savings at the pump while they last. You will probably need those extra dollars to buy gasoline by Christmas.