While we have been watching the Islamic State and discussing Iran, something much bigger is happening in the world. We are witnessing a historic fall in the price of oil, down more than 50 percent in less than a year. When a similar drop happened in the 1980s, the Soviet Union collapsed. What will it mean now?
Nick Butler, former head of strategy for BP, told me, “We are in for a longer and more sustained period of low oil prices than in the late 1980s.” Why? He points to a perfect storm. Supply is up substantially because a decade of high oil prices encouraged producers throughout the world to invest vast amounts of money in finding new sources. Those investments are made and will keep supply flowing for years. Leonardo Maugeri, former head of strategy for the Italian energy giant Eni, says, “There is no way to stop this phenomenon.” He predicts that prices could actually drop to $35 per barrel next year, down from more than $105 last summer.
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Source Credits: Fareed Zakaria in The Washington Post