With oil prices hovering around $130/barrel this week, the obvious question is how high can the price go. There are plenty of factors that affect the price of oil including possibly waning supplies, increasing demand and, of course, speculation. George Soros has made billions in his career by being able to judge where markets are going to go and then react accordingly. As the old investment disclaimer always, past performance is no guarantee of future results. Nonetheless, when Soros speaks people would be well advised to listen.
In an interview with The Daily Telegraph, Soros seems to think that speculation is a much bigger part of the price run up than most other experts. If speculative buying is indeed playing a bigger part than supply/demand curves, then at some point the price will inevitably come down. And if this scenario does play out the price will come down hard. According to Soros, the oil crash will come in the wake of recession in both the United States and Britain. A collapse in demand in both countries will pull out the rug from oil prices.

The problem with all of this is that high oil prices are now driving a shift toward more efficient vehicles. If oil prices collapse it may well kill demand for those cars and if the collapse is driven by recession, it will definitely kill cars like the Chevy Volt and may well kill several automakers. Soros believes the recession will be longer and deeper than past recessions because of a drop in real estate values. However, if oil prices drop, it could also help reduce a lot of inflation we now face and it could dampen the recessionary dip. What do you think?

[Source: The Daily Telegraph]

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