Illusion Based on a Fantasy
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Evaluating the historical data on the subject, John Mauldin concludes, “As both GaveKal and Rosenberg note, a doubling in the oil price is not good for markets... As I wrote a few weeks ago, we are entering a period where recessions are likely to be more frequent and markets more volatile. These are not times for normal buy-and-hold strategies.” (Are Booming Economies Good for the Markets?)
Considering the turmoil that has been unleashed in the wake of civil unrest and the outbreak of open conflict in Libya, and the resulting affect on oil prices, imagine how much damage would be caused to the global economy by similar events happening in Saudi Arabia. On Saturday, March 5, the Interior Ministry of Saudi Arabia announced a ban on all protest rallies and marches following recent anti-government protests in the kingdom’s east. The UK Independent reported that the ruling House of Saud has deployed security forces, possibly numbering as many as 10,000, into the oil-rich north-eastern provinces.
Keep in mind that while Libya produces roughly 1.5 million barrels of oil a day, Saudi Arabia produces over six times that amount, roughly 9.7 million barrels a day. Should Saudi Arabian oil production be disrupted, the consequences for the global economy would be enormous, and the price of oil would undoubtedly go up considerably.
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