Courtesy of The Automatic Earth .
Jack Delano Spectators at annual barrel rolling contest in Presque Isle, Maine Oct 1940
How low can and will oil prices go, and what will the effects of those prices be? I bet you’ll have a hard time finding even just two people who have the same opinion on that. Not that it’s merely a matter of opinion, mind you, there are a great number of real life factors that come into play. It’s not an easy game.
OPEC gets together next week, and it’s a cartel divided. Many if not most of its members are suffering some kind of losses at present prices, and the obvious choice seems to be to cut output in order to raise prices again. But that’s not easy either, because at lower prices they need more output, not less, to minimize the damage. Besides, is non-OPEC producers don’t cut their output, OPWC cuts may do very little to lift prices.
After the recent plunge in prices, WTI is in the $75 per barrel range, and Brent around $80, the playing field has already been altered significantly. Some producers are fine with oil at $60, others need $120. Many Middle East governments need high prices to keep domestic unrest at bay, even if they can produce relatively cheaply. Some, like Venezuela, are already very close to what looks like a collapse.
There doesn’t seem to be much doubt that Saudi Arabia’s decision to cut its prices has played a major role in bringing down prices. The reason why it’s done that, however, is not so clear. Weakening the economic and political power of Russia, Venezuela and ISIS is a very obvious underlying reason. That the House of Fahd would engage in some sort of battle with US shale seems less likely; the Saudi rulers don’t fight the US that has protected them militarily for decades in the volatile region they’re in.
These geopolitical reasons behind the price drop are interesting, but perhaps the purely economic background plays a far greater role than we tend to think. We know that most large economies are not doing well at all, and we also know that their leaders and central bankers do whatever they can to make…
Read more about Who’s Ready For $30 Oil?
No comments:
Post a Comment