Oil Price Plunge? It's The Global Economy, Stupid!

The decline in the price of oil - in the face of surging geopolitical pandemonium - has been lauded as indicative of both US' awesomeness in energy independence and a tax cut for Americans... but, as the following chart suggests, there may be another - much more realistic - explanation for why oil is plunging... demand!

World GDP expectations for 2014 just tumbled to their lowest since estimates started...

Maybe - just maybe - that explains the price of oil...

Charts: Bloomberg

Comments

[vegas]

When practically every spec long account in the world went long oil back in June, undwinding is always a bitch; just ask Mrs. Wantanabe about the carry trades from about a decade ago when in a few months GBPJPY went from the 240"s down to the 160"s on it's way to it's final bottom around 130. And who can forget the great unwind from 2007-2008 when oil went from $150/barrel to about $30/ barrel in a straight line.

www.traderzoo.mobi

[bid the soldier...]

Everyone here knows that the stock market is loitering around new highs for several reasons

1) It tells the universe, the galaxy, the solar system, and the people with 401(k)s or better that "the economy is all right, Jack."

2) It makes American corporations very expensive for foreign banks and companies to buy out.

3) It promotes the self-fulfilling prophesy that there is a recovery, as the middle class watch their net worth rise with the market and increase their discretionary consumption.

4) Whether you've been looking for a job since 2009 or you've had a couple of raises since then, the soaring market gives you hope that the economy will gain traction and return to the palmy days before 911.

Who cares if Bernanke, and now Yellen, are in basement of the Fed printing the prices of the S&P 500, "Dancing with the Stars" will be back this Monday.

What I'm getting at is this:  Just as it is important for our economy to see a strong bull market climb a tall wall of worry, it is also important for all to know that there is an unlimited supply of crude oil, so much of it, in fact, that suddenly the supply of oil is outstripping demand for it.  Of course, the reason the supply is so great is because there are such vast reserves of it.

There are doubts about the reliability of official open reserves estimates, which are not provided with any form of verification that meet external reporting standards.^[20]

Since a system of country production quotas was introduced in the 1980s, partly based on reserves levels, there have been dramatic increases in reported reserves among OPEC producers. In 1983, Kuwait increased its proven reserves from 67 Gbbl (10.7×10⁹ m³) to 92 Gbbl (14.6×10⁹ m³). In 1985–86, the UAE almost tripled its reserves from 33 Gbbl (5.2×10⁹ m³) to 97 Gbbl (15.4×10⁹ m³). Saudi Arabia raised its reported reserve number in 1988 by 50%. In 2001–02, Iran raised its proven reserves by some 30% to 130 Gbbl (21×10⁹ m³), which advanced it to second place in reserves and ahead of Iraq. Iran denied accusations of a political motive behind the readjustment, attributing the increase instead to a combination of new discoveries and improved recovery. No details were offered of how any of the upgrades were arrived at.^[20][21]

The sudden revisions in OPEC reserves, totaling nearly 300 bn barrels, have been much debated.^[22]Some of it is defended partly by the shift in ownership of reserves away from international oil companies, some of whom were obliged to report reserves under conservative US Securities and Exchange Commission rules.^[20][23] The most prominent explanation of the revisions is prompted by a change in OPEC rules which set production quotas (partly) on reserves. In any event, the revisions in official data had little to do with the actual discovery of new reserves.

Many oil-producing nations do not reveal their reservoir engineering field data and instead provideunaudited claims for their oil reserves. The numbers disclosed by some national governments are suspected of being manipulated for political reasons.^[4

Sorry to be a spoil sport, but what we are seeing is exactly how the world will look when it runs out of oil.  It starts out with a a dip in demand, the government does everything it can to keep the economy afloat.

The redistribution of wealth continues unabated.

[messymerry]

**** OFF TOPIC ****

I know this is off topic, but I felt you all need to be aware of this:

The CBC is warning Canadians about a U.S. program where America law enforcement officers — from federal agents to state troopers right down to sheriffs in one-street backwaters — are operating a vast, co-ordinated scheme to grab as much of the public's cash as they can through seizure laws.

http://beta.slashdot.org/story/207105

Protect yourselves and respond accordingly...

[nathan1234]

So if oil price drops further- then shale oil will stop- then availability goes down and price goes up and shale comes back ?

And of course, if the Mad Obola pursues with his War Policies ( no wonder they arranged the Nobel Peace Prize- so he could go to war pretending he is for peace) no limits for oil and refined products price.

[falconflight]

I would assume that OPEC will adjust its pricing if not production.  That said, there is less price elasticity within the developed nations due to tax and regulatory inhibitors that strips out disposable income from the hundreds of millions already struggling to maintain control of their household budgets.

[MeBizarro]

Or could it be a classic case of using two largely fairly remote concept and creating a graph scale and timeframe to make the author's point.  Junk post. 

[Semi-employed W...]

God I wish people really didn't want to come to Florida.  Especially, from the blue states.

[TweedleDeeDooDah]

A simple look at the Presidential election between Obama and Romney showed Florida to be... a... BLUE STATE.

Durrr, durrrr... you live in dribble cup trailer park. Durrrr... Durrrrrrrr.

[NoWayJose]

In 2007 - drive to work, drive home, drive to restaurant, drive to store

In 2014 - drive to unemployment office

Saves a lot of gas!

[TweedleDeeDooDah]

It's the global economy from 5 or 6 years ago, catching up with us now.

We had a recession WITHOUT deflation, which is an outright lie... we just POSTPONED the deflation until now.

If oil is cheaper, then mining is cheaper, running agricultural machinery is cheaper, and moving all that shit around is cheaper.

So we now enter a new period of record profits (and socia upheaval shortly ahead), or a world of deflationary prices.