Sunday, November 9, 2014

Severe weather and the Forex market | Oil price fell last winter

The release of the latest report from the Intergovernmental panel on climate change (IPCC) warning us that it is more likely than ever that global warming is taking place and that it is caused by humans, reminds us that last winter was the occasion when it appeared that a large part of the economic activity in the US came to a shuddering halt due to severe weather, which had its effect on the markets. There was a fear that it could even go so far as to cause a structural, long-term decline.

Well, that did not happen. In fact when the winter was over the US economy took off like a rocket, and we are still feeling the effects. Now, as we approach that time of the year again, it is timely to wonder if we are in for more of the same this year?

A report in Time Magazine has it that last winter was not really that bad in the USA after all, in historical terms. The authors’ thesis is that, as temperatures have been rising over many years, people’s perception of what constitutes a cold spell has changed. What would have been tolerated as normal in the middle of the last century is now regarded as freakish. This may be true, but it has always been the case that it is perceptions that count.

Oil price fell last winter

Another interesting observation is that the price of oil, normally so sensitive to heating requirements in the US, showed a significant dip last January. It later rose throughout the spring and summer before starting its rapid decline to where it is today. This decline is down to the fact that the USA is producing oil now from Shale reserves and is on the point of becoming an exporter once again, as laws passed to prevent exportation of oil in order to conserve supplies are being repealed.

Was the fall last January a forerunner of this, or was it yet another indication that last winter was not as bad as it seemed at the time?

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