Energy – not peak oil, but peak price

The recent dramatic fall in the crude oil price poses the question: is this just a blip due to temporary fears about global economic growth? Or is it the start a longer-term shift in market dynamics? We think the latter and expect oil to fall in nominal and real terms over next decade.  The major structural risk to this position is geopolitical: a significant disruption of oil supply in the Middle East or from Russia.  But over time, that risk will fall as economies diversify into alternate energy sources, both conventional and renewable.  A falling oil price reinforces our existing conviction of being long the US dollar.  Lower oil prices also expose Russia’s economy as a one-trick pony, so we remain short the rouble.

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