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5 Reasons Oil Prices Are Dropping
Submitted by Chris Pedersen via OilPrice.com,
As oil prices continue to fall, analysts and producers are trying to wrap their heads around the reasons and identify a floor price. Even though crude benchmarks like Brent and WTI keep dropping, the cost of finding oil continues to rise. What are some of the key drivers that have created this paradox?
1. The U.S. Oil Boom
America’s oil boom is well documented. Shale oil production has grown by roughly 4 million barrels per day (mbpd) since 2008. Imports from OPEC have been cut in half and for the first time in 30 years, the U.S. has stopped importing crude from Nigeria.
2. Libya is Back
Because of internal strife, analysts have until recently assumed that Libya’s output would hover around 150,000-250,000 thousand barrels per day. It turns out that Libya has sorted out their disruptions much quicker than anticipated, producing 810,000 barrels per day in September. Libyan officials told the Wall Street Journal last week that they expect to produce a million barrels per day by the end of the month and 1.2 million barrels a day by early next year.
3. OPEC Infighting
There have been numerous reports about the discord between OPEC members, leading many to believe that OPEC will not be able to reign in production like it has done so in the past. The Saudis and Kuwaitis have reportedly been in an oil price war, repeatedly lowering their prices in order to maintain their market share in Asia. John Kingston, the news director at Platts, believes that the Saudis will not be willing to give up market share like they have done during previous price drops.
4. Negative European Economic Outlook
European Central Bank president Mario Draghi has left investors concerned about the continent’s slow growth. Germany’s exports were down 5.8 percent in August, stoking the fears of anxious investors that the EU’s largest economy had double dipped into recession last quarter. Across the Eurozone, the IMF again lowered its growth forecast to 0.8 percent in 2014 and 1.3 percent in 2015.
5. Tepid Asian Demand
Beyond slow economic growth and currency depreciation, a number of Asian countries have begun cutting energy subsidies, resulting in higher fuel costs despite a drop in global oil prices. In 2012, Asia’s top spenders on energy subsidies, as a percentage of GDP included: Indonesia 3 percent; Thailand 2.6 percent; Vietnam 2.5 percent, Malaysia 2.3 percent, and India 2.3 percent. India is a primary example. Between 2008-2012, India’s diesel demand grew between 6 percent and 11 percent annually. In January 2013, the country started cutting the subsidies of diesel. Since then, diesel consumption has plateaued.
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#6 Hurt Putin?
#1 should have been, "part of the strategy to crash the Russian Economy" won't work of course but it sure is fun re-using old strategies. LMAO
Crap articles like this are why the new ZH is on its last legs of legitimacy.
Know your enemy
AD
Crap posters such as yourself are one of the primary reasons I wish ZH had an ignore feature.
Alright Quasi, you and I have been around for about the same amount of time. Tell me, would we have seen this low level crap just a couple years ago? Seems to me this belongs on Market Watch or some other surface level site, not ZH. Show me the value in this PLEASE. And if you need to ignore, then don't read. At least you took the time to type something rather than just clicking the down arrow.
AD
This was an entirely different place a few years ago. I think the stories reflect the commenters instead of the other way around. Gotta pay bills I guess. Still beats most other sites.
could another reason be that Al CIA-da/I-CIA-SIS has taken over a bunch of oil in Iraq and have been selling it for 60% under the market prices lately? Not sure what the daily number of barrels are or if it's a enough of a significant amount to skew the market prices, but if certain countries are buying black market oil at 60% under normal costs you'd think that would leave a mark.
How about this: cheap oil hurts sales of electric cars, slows investment in mass transportation and fuel efficiency, and generally stops the progress the US was making on energy efficiency. Then a few years from now oil doubles or triples in price.
Chess instead of checkers.
Maybe it's because scientific advancements could make oil obsolete.
http://www.extremetech.com/extreme/191754-cold-fusion-reactor-verified-b...
Reasons #1 through 5 are Hurt Putin/Russia/BRICS and preserve the PetroDollar.
This OilPrice.com blog is a joke. This sounds like the usual drivel from the FED.
"How about this: cheap oil hurts sales of electric cars, slows investment in mass transportation and fuel efficiency, and generally stops the progress the US was making on energy efficiency."
Electric vehicles are seen by leftist governments as an important part of cutting emissions and reducing global warming. Some scientists are questioning their green credentials and their concerns are focused on two areas: (1) How electic vehicles and their batteries are manufactured, and (2) how the electricity which powers them is generated. One recent study by scientists in EV-friendly Norway has found that in some circumstances electric cars can have a greater impact on global warming than conventional cars:
http://www.bbc.com/news/magazine-22001356
Pheonix Capital still hawking on ZH. Where is Reggie explaining financial meltdown ?
My bet is rehab.
i assumed stories like this were a result of the sheer output required to keep ZH "sticky"...
Maybe its just the inevitable "Saturday Night Live-ification" of ZH...("top 47 reasons why______" meh.)
but the Markit Lull™ seems to be ending & posts are getting more interesting again (present post excluded...of course the author left out one of the MAIN geo-political "reasons"...more frickin realpolitik hanky panky)
its been a long time since the "Tally Ho" days of '09
BK, have you seen USA Watchdog? There you can find great interviews and even better comments.
I believe this place was certainly different a few years ago. The collective IQ of the newer posters has gone down.
I find myself looking for the voices I trust (I don't post much because I don't have anything to say that moves the dialogue forward). The rest is static.
But DANG the charts have gotten cooler! I don't understand them at all but they are much cooler!
American Dreams
Can you comprehend the possibility that some mainstream articles, Obama speeches, IMF analyses, etc.
are published at ZH for criticism and further analysis in the COMMENTS section,
and not because "ZH" has endorsed their statements?
The comments section at ZH is often superior to the articles published.
Yes I can, but this does not seem to be one of those. Maybe I'm to quick to jump on the post for what it is rather than for its purpose. But maybe not - agreed thogh onthe comments section, it really is the life blood around here and the main reason to keep coming back.
AD
ZH articles used to be insightful. Criticizing the current state of affairs in in the economy and Obama's policy is something a ten year old can do. ZH is becoming a rag, the investigative and insightful part are gone.
ZH seems to be morphing into a Drudge Report shock headline web site...
If it lines the pockets of the owners, so be it...
"Noli equi dentes inspicere donati"
vbox populi?
PPT told to pull out of the oil market.
Deflation.
Low demand.
Longs have folded
Agree with the first sentence. Not so sure about the second sentence.
What if the physical oil users are dropping their positions and strategies, while realizing there's going to be only an irrelevant dollar price for som crap derivatives next year, functioning markets @ other currencies?
Hurt Putin should be at the top of the list, with payback for finally getting directly involved in Syria a close second. All of the other reasons listed are complete bullshit, as supply and demand don't mean as much to the gasoline prices as this poster seems to think.
That's 2 or 3
#7 More access to industrial hemp/biogas?
#1 - massively overlevered funds liquidating positions
#8 People have no more FIAT trash, everyone maxed out.
Rockefellers going underground for the commencement of the collapse
Good luck with that shale boom with oil at these levels.
Yea, I laughed at that too.
Also the Libya is back point really had me rolling on the floor. The place is a complete mess thanks to those freedom loving NATO boys and girls.
Pretty much mainstream stuff...
Welcome to Shale Hell. Breaking rocks to suck out the slender dredges. Akin to slurping out the last drops of a milkshake using a straw pulling more air than fluid.
Desperation becomes normal in the strange new world of controlled media and controlled thinking. All is well, all drones please return to your work stations, all is well. all is well........
Shale is no worse than the idiots who dream of building a pipe line to send sand sludge to Texas for refining.
@Dr.Engali Saudi oil with it's lower production costs can play this kick out the supports game longer than Alberta or just about anyone else can.
I also think it's all in a back room deal to lower election year angst among other things.
.."may you live in interesting times"..
#1 is bullshit. Yes the US is producing a lot of oil but it produced about as much last year and prices did not fall like they are now.
Demand is being destroyed by recession and the price is falling.
the U.S. is still using close to 20 million barrels per day, and still importing ~60% of that.
But I certainly won't complain about cheaper diesel, fucking bring it!
We now are exporting finished goods that get counted in that total..
..another day, another shell game.
This is part of the war on Russia. Demand is having an impact but Saudi Arabia and the manipulation of the futures market are the dominant factors.
Wow! I had no idea. That is why I love this site, information that I cant seem to find for myself (my google fu is no good). Thanks man +1
Honestly, Phallic: thank you. I would never have found that article if you wouldn't have posted it.
for some reason, the up arrow on this comment isn't working. Thanks for the intersting post on the work around... UP!
If a post is started with copied italics it cannot be up or down voted.
Great read. Thanks
thanks, PC...this why i love ZH!
The International Energy Agency (IEA) trimmed 2014 oil demand growth forecast to its slowest in five years on Tuesday.
In its monthly oil market report, the IEA cut its forecast for the amount of expected oil demand this year by 200,000 barrels per day to only 700,000 barrels per day.
http://www.icn.com/en/commodities/2014/10/14/oil-demand-growth-forecast-...
incredible chart.. it is not only the state of economy, I think. The price has rather hit sensibility threshold somewhere in past. People changed their habits slowly as a response. a textbook example of delayed price sensitivity.
The questions remains wether it is reversble change. I rather would gueess no. Or it may take a while. Oil producers shot themselvees to their leg.
" the U.S. has stopped importing crude from Nigeria."
RACIST!
" What are some of the key drivers that have created this paradox?"
Maybe same reaon market mostly keeps going up.
#8 - oil being traded in something other than dollars.
THAT is an interesting thought experiment, but would think that would leave the same pool of dollars chasing a smaller pool of oil supply (i.e. price goes up). Unless, folks went off the dollar trade into the "other" currency trade (i.e. taking dollar demand and oil demand with them), so maybe that pencils out.
I think this is all a precursor to kinetic fighting ... too much shit is going on all a sudden.
Regards,
Cooter
or, those who must buy their oil products in dollars, simply have less dollars... (like the american middle class, less dollars to spend, less demand, period)
This is an excellent point, actually.
#6. Market Manipulation? Naw, couldn't be...everything is priced @ fair market value, as per free trade...
The current falling oil price gnosticism reminds me so much of 2008.
Bullshit then, bullshit now.
Seems like a last gasp attempt to tighten the thumbscrews on russia for pissing on the dollar.
DXY ripping
above last wednesday when FOMC minutes came out ... and warned of USD strength.
King Dollar
This is good news for me. I will soon expect gas to be $2 gallon just like the good old days, then watch the economy do a moon shot!
gas in my hood dropped another 10 cents/gallon yesterday. $2.89
Hasn't been that low in years
new (fuel efficient) vehicle sales no likey
coupled with subprime auto lending beginning toast
got popcorn?
ELECTIONS are upon us in November.... I can hear it now...OIL PRICES ARE DOWN,,,and the economy is getting better...see,,,the democrats have everything under control..... ahem...bullshit
Aww ya beat me steve.
By a whole minute too.
Do you really fucking care about the Dempublicans/Republicrats bullshit? Really? Choosing between the lesser of two evils when both are vacuous, vapid, hollow, power obsessed narcissistic sociopaths is a fools game if there ever was one. At this point I'd happily vote for Ventura for prez. I'll just cast my "throw the bums out ballot in November, fuck both "parties". Assholes. Worse than worthless, they are, as far as I'm concerned.
Whether I care or not isn't the issue, they care. It's their gravy train on the line not mine. I just get to keep paying for it.
I know we all talk about the 2 parties being different sides of the same coin but the demoncrats are totally unresponsive to the voter base.
They have the Obozo mandate and could give a fuck what you or I want.
The repugnicants have the tea party at their heels and are all running scared, so if the repugs side of the coin lands up this November, we still have a chance to reach them.
Think about that.
Sanctions on russia oil sector
ISIS are every day closer to south Iraq.
Libya is volatile
Lower price cut shale productions
So, why oil price drop so much? What is fundamentally changed in 4 months for nearly $30 drop?-Midterm elections and pressure on Iran and Russia. But, what about if Russia, Iran, Venezuela, Kazakhstan and China create own cartel to manipulate price?
There is only one reason: Mid term elections next month.
+2.86 (and dropping). Must reduce fuel prices at the pump so that sheep can get to the polls to vote away MOAR of their rights.
#9 Obozo sending Sea Biscuit back to Saudis with tail between legs promising to hammer Syria and Saudis dumping crude into tepid demand market??? Nah, impossible!
this article is shit
what, no Ebola?
this d00d is comical...
he actually imagines there is market forces involved? o really?
well, SOMEONE has to take delivery when contract expires .... maybe all the (parked) supertankers are full?
There are no market forces, only forced markets.
As oil prices continue to fall, analysts and producers are trying to wrap their heads around the reasons and identify a floor price
the kingdom, OPEC’s largest producer, will accept oil prices below $90 per barrel, and perhaps down to $80, for as long as a year or two, according to people who have been briefed on the recent conversations.
I give up.
back of the napkin, 8000 on the dow, 50 on oil. thats about a 50% drop in asset prices. gold should hold up better, all these things will be scarce, the oil companies are not going to sell gasoline at $2 a gallon, at least not much of it. you wont be able to find a gold coin. (its a tough call, buy now and watch the dollar value drop or wait till later and there is none) the wall street solution is to cancel the trades, zero volume. wait until they orphan your stocks, never mind your bonds
Bullshit article.....ignores one of the most salient facts....Consumption per captia in the US has flattened. Better fuel economy. Huge chunk of the population no longer driving to work...because they HAVE NO JOB. Consumption worldwide ...(except for military oil usage)....slows as the overall world economy slows. Bankster fraud doesn't use gasoline, and that is most of what keeps the world economy pumping.
our ME policy is to continue to denigrate populist movements such as the Muslim brotherhood in Egypt. the typical dictator uses his countries wealth to build a large army, and to keep a small class of very wealthy people in place. should a real peoples democracy arise in any of these countries, the leaders will start selling oil to feed the poor, build hospitals, and support the society at all levels. we're against that naturally because we need high oil prices to maintain wall street asset valuations. if oil isn't worth anything what is?
My personal favorite:
Yep.
Libya's additional 600,000 bbls a day (added to the 90,000,000 bbls a day already in global production) was enough to turn the tide and send the prices tumbling down like the proverbial straw on the proverbial camel's back.
Let's see, last time prices were this low, we were in a global recession, caused by Bush, right.
So, can we now say that we are in a world wide depression, caused by His Royal Anus, King Obola?
i.e. "why we got oil price wrong again this time"
The oil cartel realizes that their artificial high prices were forcing corporations to find alternatives to oil based products for heating and transportation. In the 1970s, the sheeple wanted the alternatives but the technology and finding willing corporations to mass produce the alternatives was close to impossible. Hybrids and modern home heating systems are starting to become mainstream.
So should we soon be seeing MSM stories about collapse in Global Warming?
Doubt it.
And sea ice will continue growing and polar vortex will arrive sooner this winter.
CONTINUE?
It has to start before it can continue... and it isn't.
NUMBER ONE REASON:
http://www.zerohedge.com/news/2014-09-03/god-crude-oil-trading-goes-all-crude-150-bet
...pay attention ;-)
this is the result not the cause. the asset bubble is crashing, oil, gold, housing, EQUITIES... arent low oil prices good for the economy? not the obama/bernanke economy. that economy is based on reinflation of 2008 valuations. still thinking lower oil prices are good for the economy. what happens when the big oil companies on wall street lose half their value. your pension fund goes into the tank, and your state has to make up the difference. your house is worth less, your gold is worth less, and there is nothing to buy. everyone is poorer. they have tried to keep juggling oil prices higher to keep your standard of living from collapsing, now they've dropped the ball. by reinflating the market in 2008 they have created a new class of permarich, many of them government retirees, these people won't let go of those fat checks they get every month, and 9% returns on the fund investments. they will vote for anybody who promises to get the balls juggling again (and write fat checks too) now you will be cursing them as well as wall street, but eventually there are more of us poor folks and all we have is pitchforks and our collective anger, that they are running an economy in which lower prices is not good for the economy.
How could there not be the primary reason? Oligarchian govts provide much of the world's oil. They promised the people social programs and with lower oil prices must pump more to keep their people complacent. This positive feedback loop will self destruct over the longer term.
If oil continues to drop after Nov 4, 2014 I will eat my hat.
#6
Number of people working has dropped to 30yr low.
People who don't work, don't drive.
Industries which have closed don't ship anything.
The Baltic Dry Index collapsed over a year ago and is flatlined.
Unlike the financial markets, raw energy use is a fixed reality.
Ditto...
http://www.eia.gov/dnav/pet/hist/LeafHandler.ashx?n=PET&s=A103600001&f=M
Thanks for link!
Absolutely, Sometimes the most obvious is the most overlooked.
Also, the Saudis are being pressured to crush the petroleum price to make things difficult for the Russians.
No mention of stronger dollar?
No need - it isn't stronger.
this may be the right moment for NG. NG is at a discount to gasoline, in part because there is no uniform delivery system. but most public services are using it, buses, trash trucks, etc. its been a dirty little deal that government was given access to NG and consumers were not, to subsidize government energy needs. NG has a better floor under it, and more upside probably, but as long as government policy is to prevent consumers from having it, the price will remain controlled.
Hedge Funds
November election.
Gas jumping from $2.55/gal to $3.25/gal today (area code 48838) go figure...
This crap is on Zerohedge?!
The probability (95%+) is that the oil price will fluctuate between $36-$72 per barrel , with competition driving it to the lower levels ,
See http://andreswhy.blogspot.com/2012/06/fracking-and-oil-price.html
For the nitty-gritty , see
See http://andreswhy.blogspot.com/2008/07/optimal-markups.html
6. Prop up the economy so it doesn't crash ahead of a globalist time schedule for a crash
oil prices kept articificially low to hide/prevent food price inflation ahead of the holidays and elections.
China benefits most of all, de-dollarization accelerates, Russian pipeline buildingin contrast to American debt-building.
http://www.gulf-times.com/Mobile/Eco.-Bus.%20News/256/details/412076/Rus...$25bn
Never confuse the short term with the long term, fellow babies.
"Never confuse the short term with the long term"
What's the name of your anti-anxiety medication, pal?
Oil prices down isn't necessarily a good thing. To me it is signalling that the economy is completely collapsing. As it continues those boom towns in North Dakota will start looking like ghost towns.
"Oil prices down isn't necessarily a good thing. To me it is signalling that the economy is completely collapsing."
But the economy IS completely collapsing.
And low oil prices are suppose to UNCOLLAPSE IT.
analysts and producers are trying to wrap their heads around the reasons and identify a floor price
A jumbo supply side problem is so much more preferable than a puny demand side problem.
N'cest pas?
only ONE reason: rigging couldn't fight demand-drop so now the rigging will go the inverse direction to ensure profitability for the riggers, especially those who already hold real physical oil.
I'm in Malaysia now and they cut the subsidy by 20 cents a liter, it doesn't sound like a lot but it adds up. Most don't make that much and now have to send 100 ringeget plus a month in higher gas prices. Then next year they will add a 6% GST. Anyone care to guess how the economy will react?
NASA confirms ‘impossible’ thruster actually works, could revolutionize space travel
Maybe hi-tech is making oil obsolete...
"1. The U.S. Oil Boom
America’s oil boom is well documented. Shale oil production has grown by roughly 4 million barrels per day (mbpd) since 2008. Imports from OPEC have been cut in half and for the first time in 30 years, the U.S. has stopped importing crude from Nigeria."
Sorry but the only thing that I see is a huge bubble that is fueled by accounting tricks and access to easy money from lenders who don't seem to care if they ever get repaid. The simple fact is that no primary shale producer is cash flow positive from shale operations. The only reason why reported income looks acceptable has to do with the ability of company accountants to use depreciation schedules that are based on Estimated Ultimate Recovery rates instead of the Actual Ultimate Recovery rates that can be calculated from the production data. It is easy to show a profit if you take out half the oil that will be produced by the well but only write off 25% of the cost of that well. But that game can only last so long and given the fall in oil prices that we are seeing thanks to the Suadi attack on Russian market share it will be hard for the shale producers to keep playing for much longer.
The trouble is that once the shale bubble bursts we can see the Saudis locked into long term contracts at low prices as their fields are being harmed by the high production rates even as global prices are moving much higher and they could have received far more revenue for their product. And let us note that all Putin has to do is get one group to attack and damage a Saudi oil terminal and we could be up to $200 oil even in a broken economy. I think that this may be the time to look to coal producers with clean balance sheets, uranium producers, and plain old tar sands players because after shale pops investors will be looking at viable producers that make sense.