From our highs of $110 last year... We have seen the price of oil fall to uncharted territory - Lows not seen for 6 years & it looks like there is no stopping this fall... But what is the driving force behind the decline? & why are prices not being absorbed into our REAL Economy? Why are Petrol prices not falling & why are my flight tickets more expensive than last year?
Let's try and break this down...
Key Economic Facts
- The value of WTI/Brent has fallen over 50% in under 12 months;
- US Oil Production is at record highs;
- US Hoarding levels are at all-time highs (Storage with the anticipation of a price hike);
- Refineries are due to be offline for repairs in Spring...Storage levels set to increase further;
Source : DailyFX
Political Uncertainties
Let's take Iran for example... the falling Oil price has probably hit Iran more than others, given their export sanctions & talks of relaxing their sanctions have driven down global prices...
Why is Iran so important?
- IRAN has almost 10% of the world's proven reserves;
- Iran has 37 million barrels of oil in storage ready for IMMEDIATE export
Relaxing sanctions would significantly support the European economies (who are becoming more reliant on trans-Atlantic Crude) & also ease the black-market issues which lurk in the background.
The US Economy would also infact benefit!
However, actual oil production has dropped over 60% in the last 3 years; and Financial sanctions have made it extremely difficult for Iran to attract FDI to actually pump Oil out of the ground. Back in late 2014, India was importing 350,000 barrels of Iranian oil per day... That has now fallen to 50K.
What will happen now?
Yesterday, Oil prices began their fight back on the back of a weaker USD... but this could easily be short-lived.
As Oil Storage capacities continue to deplete, it becomes more likely that prices could drop significantly. However, this also depends on the extent of production....
As all of this occurs, demand for domestic crude in the US declines... pushing prices down & forcing more into storage....
"WTI could drop to $35 per barrel in the coming months" Projection from Societe General.
Could Oil become the Most Lucrative Investment in Modern History?
As populations continue to exponentially increase... there is no doubt demand will rise... However, a renewed bout of weakness in the oil markets, notwithstanding this week’s price gains, was further backed up by comments from the Saudi Arabia’s OPEC governor Mohammed al-Madi, who said on March 22 that a return to $100 per barrel would be hard to reach. Saudi Arabia’s Oil Minister Ali al-Naimi reiterated that position, blaming non-OPEC producers for their unwillingness to cut back on production. He said that OPEC will not do it alone, and even revealed the fact that Saudi Arabia recently boosted its oil production to 10 million barrels per day. “The production of OPEC is 30 percent of the market, 70 percent from non-OPEC...everybody is supposed to participate if we want to improve prices,” al-Naimi said.
Trading Oil with Atom8 - Coming soon for April 2015
Hope you enjoyed the read. Any comments, Feedback would be largely appreciated.
Peace & Love
Anish @anish8fx
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