Has my prediction been wrong?

Yesterday I made my prediction that the price fall in oil will continue for at least one decade and the world economic growth could remain low until a new economic stimulus tool is developed. Today these predictions seem to be wrong. That the OPEC agrees to cut oil supply and push oil price above 50 dollars and the US 10 year bond yield rises sharply today, showing the market confidence about the future growth.

However, my predictions are about long term trends rather than short term performances. The markets are always changing and adapting latest incoming news and information, and the prices can fluctuate all the time. I am actually surprised about the agreement made by the OPEC that I thought they could no longer be able to come to an agreement as they previously increased supply to compete each other. However, the low oil price will still continue, because of several reasons.

Firstly, the demand for oil is determined by the world economic growth. If the world economic growth slows down, the demand for oil could become weaker, thus the oil price will remain low. Secondly, there are now more alternatives to oil. The previously fall of the oil price also pushed down the prices in these alternative energy industries. Moreover, the technology development also drag down the costs of production in the alternative energy industries as well as the market prices. The alternative market is far more competitive than the oil market; therefore, even when the oil price retreats, the alternative energy prices will stay low, as the levels of competitions remove the possibility of cooperation and any increasing price will lead to a loss in the company’s market share. As long as the alternative energy price stays low, the price of its substitute, oil, cannot rise to a very high level. Thirdly, many countries and companies have stored large amounts of oil when the oil price hit its low. Now they have more than enough oil reserve for their future use; therefore, they can have greater bargaining power when consuming more oil, as the OPEC countries largely rely their oil incomes. When the consumers have greater bargaining power, the market price will decrease accordingly.

Therefore, the trend of falling oil price remains.