Gene Epstein details the case for a very prolonged bear market in oil prices driven by surging production from deep water, shale and oil sands. These relatively new sources are providing a huge boost to previously estimated reserves and, coupled with slowing demand growth, could set the stage for much lower oil prices in real terms over the next decade. The implications for this are likely positive for consumer spending and real economic growth and extremely negative for countries such as Russia that are highly reliant on oil-and-gas revenues. While in the short-term oil prices may have some upward pressure from geopolitical concerns, longer-term the fundamentals seem to point to declining prices.
Janet Yellen, the new U.S. Federal Reserve Chairwoman, rattled markets less than two weeks ago by implying a sooner-than-expected rise in interest rates after a Fed policy meeting. However, yesterday, she made clear at a speech in Chicago that the Fed intends to keep interest rates low until the market is much stronger. She said “while there has been steady progress, there is also no doubt that the economy and the job market are not back to normal health.” She went on to list five reasons that she sees continuing slack in the U.S. economy, including seven million part-time workers that would prefer to be in full-time jobs. Ms. Yellen’s quick re-messaging of her previous comments implies that she wants capital markets to continue to view the Fed as being unusually accommodative.