Could Low Oil Prices Trigger Another Recession?

Source: Fortuna’s Corner (12/31/2024)

Saudi Arabia’s King Abdullah Admitted To Hospital; Potential Game-Changer For Oil? While One Wall Street Analyst Says Oil Could Hit $14 Before Its Finished Falling

Reuters News Service is reporting that Saudi King Abdullah was admitted to a hospital Wednesday after experiencing difficult breathing. King Abdullah, who took power in 2005, after the death of his half-brother — King Fahd — is believed to be 91, although official accounts are unclear Reuters noted. “The Custodian of the Two Holy Mosques, King Abdullah bin Abdulaziz, may God keep him….entered today, Wednesday…the King Abdulaziz Medical City of the National Guard in Riyadh, to undergo some medical tests,” the statement said.

Reuters, citing a source familiar with the affairs of the Royal Family, said the king suffered breathing difficulties, and was transferred to a hospital. “But. he’s feeling better now, and he is in stable condition,” the source told Reuters.

Abdullah named his half-brother, Prince Salman, 13 years his junior, heir apparent in June 2012, after the death of Crown Prince Nayef bin Abdulaziz. Earlier this year, King Abdullah appointed Prince Muqrin bin Abdulaziz, as Deputy Crown Prince, giving some assurance on the kingdom’s long-term succession process, Reuters noted.

Shane Ferro, writing on today’s website, Business Insider, says this announcement “isn’t super surprising,” as the King’s health has been deteriorating for some time; and, his half-brother, who is next in the line of royal succession, has been representing the kingdom at recent events.”

Thus far, Saudi Arabia has made clear that it had no intention of cutting back on oil production, even in the midst of current oversupply and price implosion; but, “that could change at any time, and may very well….if there is a transition period related to succession soon,” she writes. Prince Salman basically has free reign to change the kingdom’s current stance with respect to oil production/output; and, we’ll see if this is enough uncertainty to halt or put a floor under oil prices in the low-to-mid $50 per barrel range. Saudi Arabia’s stock market sold off on the news, closing down -6.5 percent for the day.

Crude Closing Out 2014 On A Down Note

Despite this news, oil closed out the year on a down note, with Brent Light Sweet Crude down thirty-five cents, or -.6 percent, to $57.55,while West Texas Crude (WTI) closed down 23 cents, or -.42 percent to $53.90. For the year, 2014, was a crude reality. The price of a barrel of crude lost 46 percent in 2014, its largest loss since 2008 — when demand crumbled in wake of the Great Recession of 2008.

Oil At $14 A Barrel? Here’s How It Could Happen

While most commodities mavens think oil is near a bottom, one Wall Street forecaster, Abigail Doolittle, of Peak Theories Research, says “current chart trends point to the possibility that oil has three downside targets where it could find support — $44, $35, and the nightmare scenario — of yes, $13.65,” wrote Jeff Cox on this afternoon’s CNBC website. She acknowledges that the $14 target range is an “extreme scenario,” she still has a near-term target price of $35, which is still well below the Wall Street consensus.

Bearish predictions like this make me think we’re near the bottom in prices. And, if oil does see prices below $20, we’ll have much more to worry about than celebrate — as our 401k plans will get hammered; and, there is likely to be instability in the Middle East, Russia, and elsewhere, and perhaps even a deep, worldwide recession or worse. So, here’s hoping she’s wrong. No offense Ms. Doolittle. V/R, RCP