The global economy is based on transportation networks that are propped up by cheap energy. Because of this we can be relatively certain that when demand for energy begins to fall that the economy is slowing. And when energy prices fall sharply we can be relatively certain that the economy is not just slowing but entering into a recession.
Jeff Rubin, the former Chief Economist for CIBC World Markets has showed convincingly how global recessions are linked to high oil prices. Rubin had this to sayback in May 2011:
"There will be many dress rehearsals in commodity markets before the next global recession. An example is last week’s dramatic and broad-based selloff that took oil prices for over a $10/barrel tumble. And there is no doubt that despite the scarcity of the resource, the price of oil will crash the next time the global economy sewers."Read it at Southern Limits
Brace Yourself For The Next Global Recession: It’s Already Begun
by Andrew McKay
The other factor is superabundant supply. Since oil became an asset classes, already pumped crude has been stored in expectation of rising prices owing to increasing demand in a recovery. That is not happening and storage costs are biting. Holding oil is becoming an alligator.