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Tilman Friedrich’s Benchmarks

Tilman Friedrich is a qualified chartered accountant and a Namibian Certified Financial Planner ® practitioner, specialising in the pensions field. Tilman is co-founder, shareholder and managing director of RFS, retired chairperson, now trustee, of the Benchmark Retirement Fund.

The topic of the day for the investor must be the sudden and sharp decline in the oil price.  
The following graph was published in Efficient Select news brief of 4 December.
This was the time when the oil price was still at US$ 71.49 per barrel.
At the time of writing this piece, it has dropped to below US$ 60 per barrel.
As difficult as we found it to comprehend the sharp increase since the beginning of this century to a peak of US$ 140 a barrel, it is to comprehend the steep decline in the oil price since the first quarter of this year.  

We have seen the increase in the oil price pulling along commodities and the broader market as depicted in the lower graph reflecting the FTSE/JSE Alsi 40.
The broader market has maybe not been as volatile and has not had as sharp a peak and a trough before and after the financial crisis, as the oil price, the close correlation is very evident.
On its way down, the broader market is also likely not to bottom out as low as the oil price, but where will the oil price bottom out?

The topic of the day for the investor must be the sudden and sharp decline in the oil price.  
The following graph was published in Efficient Select news brief of 4 December.
This was the time when the oil price was still at US$ 71.49 per barrel.
At the time of writing this piece, it has dropped to below US$ 60 per barrel.
As difficult as we found it to comprehend the sharp increase since the beginning of this century to a peak of US$ 140 a barrel, it is to comprehend the steep decline in the oil price since the first quarter of this year.
 We have seen the increase in the oil price pulling along commodities and the broader market as depicted in the lower graph reflecting the FTSE/JSE Alsi 40.
The broader market has maybe not been as volatile and has not had as sharp a peak and a trough before and after the financial crisis, as the oil price, the close correlation is very evident.
On its way down, the broader market is also likely not to bottom ou?
As little as we were convinced then of the peak oil theory suggesting that declining resources and increasing consumption caused the increase, we are convinced that the sharp increase in US production through fracking is the reason for the sudden decline in the oil price.
US production is still minute relative to global production and it is produced at a cost making it already in many cases uneconomical at today’s oil price.
Fracking, by the way is not such a revolutionary new method of extracting oil where it was never thought possible, that it could have caught all by surprise.
A couple of years ago we already came across an article suggesting that Vietnam has become virtually self-sufficient, producing oil by means of Russian fracking technology.
Oil is a weapon used in the economic warfare of global hegemonies.
What we see today, we believe, is the reversal of what happened with the oil price on its way up, as we opined upon in our newsletter of March 2008.  
It is worth reading it again and follows here under.

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