http://fortune.com/2014/10/15/whats-behind-the-drop-in-oil-prices-heres-what-analysts-have-to-say/
Excerpts:
“While decline in demand was the key driver for the 2008 crash, the sharp drop in prices this time around is being caused by a supply glut. Continued growth in U.S. shale production and increase in non-OPEC countries oil exports have led to excess capacity,” he wrote in a note to clients....
What’s making the supply glut even worse? Slowing demand. The International Energy Administration lowered its crude oil demand projections for 2014 to about 200,000 barrels per day from the current 700,000 barrels per day. The IEA forecast is the lowest since 2009.
“Chinese demand seems to be softening and there are severe questions about the Eurozone’s recovery, leading the International Energy Agency to cut its outlook,” Scotiabank Economics wrote.
Total world oil demand is expect to grow at 1.05 million barrels per day this year. That’s well below the expected increase in production from non-OPEC countries alone, which is anticipated to grow by 1.68 million barrels per day in 2014, according to KAMCO research....
A stronger U.S. dollar isn’t helping prices. The dollar hit a 4-year high on Oct. 3 as measured by the Bloomberg Dollar Spot Index, which tracks the greenback against 10 global trading partners.
$3.039 per gallon in central Illinois yesterday.
this is welcome news
“Other countries such as Iran and Saudi Arabia will also feel the pinch as the budgetary break-even point for each country is $115 and $93 a barrel respectively.”
I’m figuring on a pretty substantial slump in the oil patch. We almost always out drill demand when we get busy. I’m surprised that we have managed to drill apace of production declines and demands for so long. Harvesting the source rock and part of the 65% plus left behind in historical producing areas kicked that pace over the edge and we are over producing.
I was talking with a group of youngsters about this yesterday. They have never seen a bust in the oilfield and asked me if I had ever been through one. I said which one?
The slump of ‘79,
the mid-continent crash of ‘82,
the horrible crash of ‘86 when people in Houston just threw their house keys in the flower bed and left,
the early 90’s when the gas glut just would not go away,
‘98 when the Saudis outsmarted themselves again to keep market share and crashed the price,
‘01 after 9/11 when the global economy sank like a rock
‘08 when it happened again,
or the countless reorganizations and right sizing and down sizing and constant layoffs that covered most of the period?
Not as low as you think. World-wide central bank money printing, massive government debt, and progressive super-regulation have raised the price floor for basic commodities world-wide. The cost for everything is much higher.
I work in Agriculture commodities and see the concept daily. Truckers won’t drive and farmers won’t bother farming unless they are assured a certain price, and that price is a lot more than it was just a few years ago.
I would guess for oil, If 10-15 years ago the cost of marginal production was $50/barrel, its probably $85 barrel today.
However low they go, won’t matter to us.
I expect most states will jump on the opportunity to take a page out of Tom Corbett’s playbook and slap a big tax on gasoline to replenish their coffers.
I filled up last Thursday at $2.94. I noticed on Tuesday it had dropped to $2.91.
Those are the lowest prices in over a year.
A year ago, the prices were in the $3.06 range and eventually reached the $3.30 range.