Wednesday, December 14, 2016

Oil Prices About To Rise.....

Trying to put the Genie back in the bottle.
The problem is there is too much oil.
The reason there is too much oil is because Saudi Arabia wanted to drive out the US Shale producers.
Oil is cheaper to produce in Saudi Arabia than it is in the United States. When Saudi Arabia started flooding the market with cheap oil, the price plunged, and the American producers had to close up shop.
But now since the price fell Saudi Arabia (and many other oil producing countries) are making a lot less money.
Up until now nobody wanted to cut production because nobody wanted to lose market share. Better to sell 20 barrels of oil at $42.00 per barrel then to sell 10 barrels at $50.00. So everyone just kept pumping. Now supposedly countries are willing to cut back.
We will see if that actually happens.
The problem the oil cartel will find is once the price begins to go back up (which it will) the American shale producers are going to jump back in………. so the supply will still remain high.
Also today shale production has become more efficient so the price point (for US production to be worthwhile) will not have to go up (as high) before that begins to happen.
So if the market is truly governed by the laws of Supply and demand the price should stabilize slightly higher than today.
The unknown is the CEO of Exxon becoming the New Secretary Of State. The other unknown is the governor of Oil producing Texas becoming the new Secretary of Energy. The other unknown is the oil loving Republicans running everything.
If the game gets rigged (as has been the case in the past) we could be in for much (much) higher oil prices. There will be nobody to protect the consumer.
That would be very bad news for the average Joe

https://www.bloomberg.com/news/articles/2016-12-13/opec-deal-will-create-oil-supply-deficit-in-first-half-iea-says

No comments:

Post a Comment