The Oil Shock Strikes Back

I would probably coined the month of August as "The Oil Shock Strikes Back"

All of the sudden, oil prices have reached new high of $70. There are queues along the petrol stations in China and Indonesia. Analyst are warning of a global economic disaster should oil prices continue to rise. The best explanation for this sharp rise in oil prices is best summed up by Zhu He, professor with the economic and technological academy of the China National Petrochemical Corporation (Sinopec).

"Driven by global economic resurgence, oil demands have been growing while the yield capacity remains the same after years of low oil prices. As a result, oil demand and supply were put in such a fragile and tense state that even a tiny factor in politics, economy, military, terrorist attacks or gambling may result in sharp rise of oil price,"

Generally, rising oil price will lead to a slowdown in the economy and demand of oil will fall. Oil exploration companies, with ballooning profits, will invest into their operational capacity and the supply of oil will generally start to catch up on the demand. In this case, oil prices will fall. Afterwhich, economies will pick up again.

Probably, you are confused by the time I am done explaining the supply and demand cycle. In short, oil prices is expected to rise in the next few months. However, when the decline comes, it will fall quickly and sharply. Equities market will continue to move up very slowly in the light of rising interest rates and oil prices. However, I will want to be well positioned in the market when the oil bubble burst and interest rates stop rising.

We may see a further run in the market soon. The best is yet to come. Stay invested.