It May Happen Again

Because I have been around a few years longer than some of the financial advisors I happen to meet, I can easily remember when the oil price went below USD 10 per barrel.
This article appeared in Vol. 4, No. 3 - 2007


The first time was in 1986. I was having lunch at the University of Texas at Austin, enjoying a 3 months sabbatical from my duties in a seismic company, reading a headline in USA Today which said that Texas Crude was trading at less than 10 dollars a barrel. Only a few months earlier it had been trading at a price 3 times higher.

It happened again in 1999, and the oil industry was scared to death. And, surprise surprise, some of the oil companies did not survive. They were not prepared for this, even if it had happened before. Perhaps they did not have financial advisors who had been around in 1986.  

However, the world is different now. Of course another fatal drop in the price of oil could not happen. I can see many reasons for this, the most obvious being the increase in demand (read China and India) and the decreasing trend in adding new reserves. You don't need to be a mathematician to forecast that Mankind will fight - literally - for the ever more inaccessible barrels. The price will stay high.  

Or maybe not. I have never met a person who has proven skills in predicting the oil price, in either the short or the long run (whatever "short" and "long" means). These days it is hard to come across self-acclaimed experts with the courage to predict a drop from today's USD 60 per barrel to USD 30 per barrel. I am wise enough not to say that it will happen. I am just saying that it may happen. For reasons I cannot know without the benefit of hindsight.  

And if it happens - maybe even when it happens - CASH IS KING.


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