What happens when the world goes into a recession? The US economy has been cooling off a bit, although it still shows growth. But, the world economy is high. I suspect that the recession won’t occur until after the US election. How hard that recession will be depends on who gets elected President. Obama will be bad for the economy; the markets won’t wait for proof before they tank. He will then demand public works and extended unemployment benefits to fight the bad economy, which will draw out the recession further. Then he has a host of anti-business plans. The main one of these is a whopping tax increase from letting the Bush Tax Cuts expire.

When the US economy goes into the toilet, that will drag in the rest of the world. Demand for oil will plummet. Cartels can hold together so long as the prices rise. As soon as the price drops substantially, it is every cartel member for himself. Saudi Arabia no long has enough influence or percentage of the world oil market to prop up the price now. They could shut down supply completely and not stop the fall.

Also, new fields will be coming into production soon. Iraq has been thoroughly explored and it is clear that Iraq has the largest oil reserves in the world, not Saudi Arabia. Iraq will be investing and drilling enough to double their output in the next five years. Newly discovered fields, such as off the coast of Brazil and in the Gulf of Mexico will increasingly be drilled and pumped. Canadian tar sands will be increasingly exploited.

I don’t expect to see twenty dollar a barrel oil again, but forty dollars a barrel? Sure. Will that be enough to sustain the new fields? Yes. If so, then OPEC is in big trouble.