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No. The price has fallen as demand has waned, or at least did not match expectations as global GDP expectations fell. Normally Saudi would reduce supply to kee
by retube 12y ago
No. The price has fallen as demand has waned, or at least did not match expectations as global GDP expectations fell.
Normally Saudi would reduce supply to keep the price up. But they've taken the opportunity to attack their biggest threat: US Shale oil. By keeping production up, the price has dropped and that is pushing shale oil extractors out of business: these guys need ~$60/barrel to be profitable. It's having a real impact - just look at the US High Yield sector. Firms are going bust, credit spreads are blowing wider and investment in the sector is dropping.
So when enough investment in Shale is killed off, the Saudis will reduce supply... jacking up the price and happy days for them.
- PopsiclePete 12y agoIt's great to have such "allies", isn't it??
- _rpd 12y agoThis is a good analysis. However, it is a little odd that everyone mentions the Saudi failure to reduce supply as a factor in lower prices, but no one mentions the increased supply from US shale oil. Although up slightly, conventionals are relatively flat. Most of the global supply increase has come from nonconventionals and US shale oil's role is significant. Interestingly, most US shale oil investments seem to properly protected against price drops via commodities contracts - at least through this year - so the near term pain will be in the financial industry.