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Isn't the price being held at an unsustainably low price by OPEC? If so, then any accounting problems would be short lived. Once OPEC cuts supply, the prices wi

Isn't the price being held at an unsustainably low price by OPEC? If so, then any accounting problems would be short lived. Once OPEC cuts supply, the prices will bounce back to ~$100/barrel, I would expect.

cheriot 12y ago
It looks like the reverse; OPEC stopped holding prices up.
- hga 12y ago
  Indeed. The theory here is that besides a demand drop due to the general world economy, and the US swimming in oil, the Saudis have decided to stop playing the swing producer game because they've noticed when they tighten the spigot, they permanently lose market share. The current US inventory issue is akin to this, because it exists in part because refineries are tuned to the types of oil they use, and we've spent quite a bit making a lot of them take heavy, sour crude, and fracking tends to produce light, sweet crude. Which is good stuff, and in high world wide demand, but due to another one of those insane '70s energy policies, no one is allowed to export crude (with I think one exception, to refineries that immediately return the distillates to the US). E.g. we should have exported a lot of Alaskan oil to Japan, when California was not set up to take all of it, and it would have cost less to transport it to Japan and equivalent oil to the US.
CapitalistCartr 12y ago
Current oil storage is nearing full. With present condition, they will be full sometime in April. It will take some months, maybe a year for storage to empty out enough to support high prices. http://blogs.wsj.com/moneybeat/2015/03/05/the-newest-commodity-oil-storage-space/ http://blogs.wsj.com/moneybeat/2015/03/05/the-newest-commodi... http://www.forbes.com/sites/christopherhelman/2015/03/04/u-s-running-out-of-oil-storage-blame-canada/ http://www.forbes.com/sites/christopherhelman/2015/03/04/u-s...
matt4077 12y ago
There's a lot of speculation on OPEC's motives and power. They could be trying to shut down exploration in the US. The Saudis could be doing the US a favour by trying to destabilise russia. They could be trying to sabotage green energy for a while. Their coalition might just be powerless because everyone needs to pump out as much oil as possible, especially at these price levels. Regarding future price levels the efficient market hypothesis probably holds: nobody without inside information knows which way the oil price is going.
- WallWextra 12y ago
  The reasons I've heard were to kill US oil exploration, and also to teach the high-cost producers (Venezuela, etc) in OPEC a lesson. It's common for these countries to "accidentally" pump over quota to make some extra cash. So Saudi just refused to cut the quota this time around. The Saudis could also be interested in messing with Iran, which has much higher production costs.
- aikah 12y ago
  I read a lot about the subject and couldn't come up with a satisfying answer as to why the Saudis are doing that. All I know is they are playing a very dangerous game and Washington is letting them do it. People say,there will be no consequences for USA,but oil prices will go up again sooner or later. What then ? I don't believe shale oil is an explanation.
  - tptacek 12y ago
    You don't believe shale oil is an explanation... why? Have you looked at the barrels/day production figures for shale oil? They are gargantuan.
adventured 12y ago
It isn't only OPEC. The US dollar shaved at least 20%+ off the price of oil, and likely instigated this crash (the world was swimming in oversupply of oil for quite some time before the crash). The US dollar began skyrocketing, due to the end of QE, at exactly the same time oil began crashing. Not a coincidence, given oil is priced in dollars and the US dollar is on its greatest one year run in decades. Look at July 1st USD http://finviz.com/futures_charts.ashx?t=DX http://finviz.com/futures_charts.ashx?t=DX Oil http://finviz.com/futures_charts.ashx?t=CL http://finviz.com/futures_charts.ashx?t=CL
- smcl 12y ago
  Can you help me get my head around the USD chart? In my head it only makes sense to value one currency vs another (i.e. the USD to GBP exchange rate) so seeing one chart which simply plots "USD" over time is a bit tough to wrap my head around.
  - andyzweb 12y ago
    that chart most likely comes from this calculation: http://en.wikipedia.org/wiki/U.S._Dollar_Index http://en.wikipedia.org/wiki/U.S._Dollar_Index
    - smcl 12y ago
      Thanks. So a weighted index of USD vs a handful of other currencies - that's a useful measurement I never really knew existed.
protomyth 12y ago
Its more like Saudi Arabia is not reducing production and certain countries such as Russia and Venezuela cannot survive at that price. I think they're trying to force closure of US fracking sites, but they can go down lower than a lot of countries.
frandroid 12y ago
It's held at an unsustainly low price by OPEC, but not for OPEC... Saudis can sell oil at $20 per barrel if they feel like it. The pain they're causing Iran right now is probably not coincidental to the nearing of a nuclear deal that would lift the current sanctions and give the regime a lot of wings.

cheriot 12y ago

It looks like the reverse; OPEC stopped holding prices up.

hga 12y ago
Indeed. The theory here is that besides a demand drop due to the general world economy, and the US swimming in oil, the Saudis have decided to stop playing the swing producer game because they've noticed when they tighten the spigot, they permanently lose market share. The current US inventory issue is akin to this, because it exists in part because refineries are tuned to the types of oil they use, and we've spent quite a bit making a lot of them take heavy, sour crude, and fracking tends to produce light, sweet crude. Which is good stuff, and in high world wide demand, but due to another one of those insane '70s energy policies, no one is allowed to export crude (with I think one exception, to refineries that immediately return the distillates to the US). E.g. we should have exported a lot of Alaskan oil to Japan, when California was not set up to take all of it, and it would have cost less to transport it to Japan and equivalent oil to the US.

CapitalistCartr 12y ago

Current oil storage is nearing full. With present condition, they will be full sometime in April. It will take some months, maybe a year for storage to empty out enough to support high prices. http://blogs.wsj.com/moneybeat/2015/03/05/the-newest-commodity-oil-storage-space/ http://blogs.wsj.com/moneybeat/2015/03/05/the-newest-commodi... http://www.forbes.com/sites/christopherhelman/2015/03/04/u-s-running-out-of-oil-storage-blame-canada/ http://www.forbes.com/sites/christopherhelman/2015/03/04/u-s...

matt4077 12y ago

There's a lot of speculation on OPEC's motives and power. They could be trying to shut down exploration in the US. The Saudis could be doing the US a favour by trying to destabilise russia. They could be trying to sabotage green energy for a while. Their coalition might just be powerless because everyone needs to pump out as much oil as possible, especially at these price levels. Regarding future price levels the efficient market hypothesis probably holds: nobody without inside information knows which way the oil price is going.

WallWextra 12y ago
The reasons I've heard were to kill US oil exploration, and also to teach the high-cost producers (Venezuela, etc) in OPEC a lesson. It's common for these countries to "accidentally" pump over quota to make some extra cash. So Saudi just refused to cut the quota this time around. The Saudis could also be interested in messing with Iran, which has much higher production costs.
aikah 12y ago
I read a lot about the subject and couldn't come up with a satisfying answer as to why the Saudis are doing that. All I know is they are playing a very dangerous game and Washington is letting them do it. People say,there will be no consequences for USA,but oil prices will go up again sooner or later. What then ? I don't believe shale oil is an explanation.
- tptacek 12y ago
  You don't believe shale oil is an explanation... why? Have you looked at the barrels/day production figures for shale oil? They are gargantuan.

adventured 12y ago

It isn't only OPEC. The US dollar shaved at least 20%+ off the price of oil, and likely instigated this crash (the world was swimming in oversupply of oil for quite some time before the crash). The US dollar began skyrocketing, due to the end of QE, at exactly the same time oil began crashing. Not a coincidence, given oil is priced in dollars and the US dollar is on its greatest one year run in decades. Look at July 1st USD http://finviz.com/futures_charts.ashx?t=DX http://finviz.com/futures_charts.ashx?t=DX Oil http://finviz.com/futures_charts.ashx?t=CL http://finviz.com/futures_charts.ashx?t=CL

smcl 12y ago
Can you help me get my head around the USD chart? In my head it only makes sense to value one currency vs another (i.e. the USD to GBP exchange rate) so seeing one chart which simply plots "USD" over time is a bit tough to wrap my head around.
- andyzweb 12y ago
  that chart most likely comes from this calculation: http://en.wikipedia.org/wiki/U.S._Dollar_Index http://en.wikipedia.org/wiki/U.S._Dollar_Index
  - smcl 12y ago
    Thanks. So a weighted index of USD vs a handful of other currencies - that's a useful measurement I never really knew existed.

protomyth 12y ago

Its more like Saudi Arabia is not reducing production and certain countries such as Russia and Venezuela cannot survive at that price. I think they're trying to force closure of US fracking sites, but they can go down lower than a lot of countries.

frandroid 12y ago

It's held at an unsustainly low price by OPEC, but not for OPEC... Saudis can sell oil at $20 per barrel if they feel like it. The pain they're causing Iran right now is probably not coincidental to the nearing of a nuclear deal that would lift the current sanctions and give the regime a lot of wings.