The reason that crude oil price crashed

[johnyj]

The bank can always get more money from the Fed provided with eligible collateral.

Oil is eligible collateral, but not when it is under $10 per barrel, same for housing, when price is in a long downtrend, anything becomes bad asset, and is not eligible collateral anymore

[DieJohnny]

How far is oil going to fall?

[jaysabi]

The reason oil prices have come down is because OPEC has cut prices arbitrarily. They were artificially high to begin with. On average it costs an OPEC nation ~$30 to produce a barrel of crude. They're still making a shitload of profit.

It's not arbitrary at all, and it's not really OPEC, as many OPEC members would rather see higher prices for their own internal political reasons. The primary driver is Saudi Arabia, who is trying to crush the shale oil producers in the US (particularly, and to some extent Canada) where oil cannot be produced at profit for less than $80 a barrel. A sustained price below that point is intended to chase US firms out of the market, as they can't produce profits at this level, which in the long-run would be good for Saudi Arabia.

[NewLiberty]

The reason oil prices have come down is because OPEC has cut prices arbitrarily. They were artificially high to begin with. On average it costs an OPEC nation ~$30 to produce a barrel of crude. They're still making a shitload of profit.

It's not arbitrary at all, and it's not really OPEC, as many OPEC members would rather see higher prices for their own internal political reasons. The primary driver is Saudi Arabia, who is trying to crush the shale oil producers in the US (particularly, and to some extent Canada) where oil cannot be produced at profit for less than $80 a barrel. A sustained price below that point is intended to chase US firms out of the market, as they can't produce profits at this level, which in the long-run would be good for Saudi Arabia.

Prices aren't "set" in that way.  It is primarily a global auction market price, with some lesser side-deals.
What the OPEC countries do is set and publish production targets for themselves.  Sometimes they also violate these targets and release more oil than they say that they will behind the backs of the cartel partners.

To say what is "intended" by them is essentially a bizarre claim of mind-reading.  There may well be other intentions entirely, (such as maintaining the largess of their regime and thus forestalling a democratic revolt) and the effects on USA and Russia may be merely side effects and unintended consequences, or even simply not as big of a factor as other financial concerns of selling enough oil as they feel that they need to sell.

Not all effects of actions are controlled.  Even children know this the first time they accidentally break something.

[user2]

Opec countries could have lowered oil production which would support high oil prices, but then they would lose market share. It's not that they (including Saudi Arabia) specifically hate US oil producers, they hate all competition and would do whatever it takes to protect their market share. Just as any other market participant would. E.g. Microsoft or Intel.
Anyone knows where I can get a good tinfoil hat?

[Agestorzrxx]

The oil price will continue to fall.

[Erdogan]

Opec countries could have lowered oil production which would support high oil prices, but then they would lose market share. It's not that they (including Saudi Arabia) specifically hate US oil producers, they hate all competition and would do whatever it takes to protect their market share. Just as any other market participant would. E.g. Microsoft or Intel.
Anyone knows where I can get a good tinfoil hat?

They could, but the non-OPEC countries could do it just as easily. The proposition does not conform to logic.

[Erdogan]

The oil price will continue to fall.

Yes. The production can not be taken down quickly, because that would bankrupt the involved companies, as they are heavily debt loaded. In addition, the biggest oil investments are done by governments, who do not turn around quickly, and, they need the cash flow to stagger the hordes, even if they have to loan more to keep the oil flowing.

[exoton]

The oil price will continue to fall.

Yes. The production can not be taken down quickly, because that would bankrupt the involved companies, as they are heavily debt loaded. In addition, the biggest oil investments are done by governments, who do not turn around quickly, and, they need the cash flow to stagger the hordes, even if they have to loan more to keep the oil flowing.

If oil prices fall far enough then oil production can be taken offline. The reason oil companies will not stop production after only a short time of low oil prices is because it costs money to both shut down production and start it back up, plus a lot of the costs associated with extracting oil is "prepaid" with the costs associated with building infrastructure to extract such oil

[smooth]

the shale supply has been going on for a few years, that doesn't explain why the price suddenly collapsed almost 50% in 4 months.
most shale oil production is not even profitable below 70$

something else is going on...

There is less global demand for oil.

It also potentially has to do with the fact that sanctions have been put on Russia which is a major oil exporter

This is the opposite of the truth.
Look at the data.

There is MORE global usage of oil, not less.
In fact, demand is accelerating!
With lower prices, you should expect usage will increase further and more swiftly.

This is really basic economics.  It is almost surprising to see such confusion on these things in a Bitcoin forum.

Be careful there. Demand is a curve/function, not a quantity. Increased quantity accompanied by a lower price does not itself indicate an increase in demand. This could happen with an increase in supply, along with no change in demand, or even a (relatively smaller) decrease in demand.

Also, there is a certain amount of increased quantity over time that is built into expectations and therefore pricing (absent peak oil -- but immediate peak oil is not the current consensus). "Decreased" supply or demand may in practice just be a smaller increase than expected.

[exoton]

the shale supply has been going on for a few years, that doesn't explain why the price suddenly collapsed almost 50% in 4 months.
most shale oil production is not even profitable below 70$

something else is going on...

There is less global demand for oil.

It also potentially has to do with the fact that sanctions have been put on Russia which is a major oil exporter

This is the opposite of the truth.
Look at the data.

There is MORE global usage of oil, not less.
In fact, demand is accelerating!
With lower prices, you should expect usage will increase further and more swiftly.

This is really basic economics.  It is almost surprising to see such confusion on these things in a Bitcoin forum.

Be careful there. Demand is a curve/function, not a quantity. Increased quantity accompanied by a lower price does not itself indicate an increase in demand. This could happen with an increase in supply, along with no change in demand, or even a (relatively smaller) decrease in demand.

Also, there is a certain amount of increased quantity over time that is built into expectations and therefore pricing (absent peak oil -- but immediate peak oil is not the current consensus). "Decreased" supply or demand may in practice just be a smaller increase than expected.

The changing of supply/demand based on price really depends on how elastic the product is. The fact that people need to use oil based products to travel to work and to ship goods purchased makes oil not very elastic from a demand point of view, and may even have negative elasticity over the short term when the price is spiking. (over longer terms consumers will likely change their consuming habits if the price of oil remains too high)

[smooth]

the shale supply has been going on for a few years, that doesn't explain why the price suddenly collapsed almost 50% in 4 months.
most shale oil production is not even profitable below 70$

something else is going on...

There is less global demand for oil.

It also potentially has to do with the fact that sanctions have been put on Russia which is a major oil exporter

This is the opposite of the truth.
Look at the data.

There is MORE global usage of oil, not less.
In fact, demand is accelerating!
With lower prices, you should expect usage will increase further and more swiftly.

This is really basic economics.  It is almost surprising to see such confusion on these things in a Bitcoin forum.

Be careful there. Demand is a curve/function, not a quantity. Increased quantity accompanied by a lower price does not itself indicate an increase in demand. This could happen with an increase in supply, along with no change in demand, or even a (relatively smaller) decrease in demand.

Also, there is a certain amount of increased quantity over time that is built into expectations and therefore pricing (absent peak oil -- but immediate peak oil is not the current consensus). "Decreased" supply or demand may in practice just be a smaller increase than expected.

The changing of supply/demand based on price really depends on how elastic the product is. The fact that people need to use oil based products to travel to work and to ship goods purchased makes oil not very elastic from a demand point of view, and may even have negative elasticity over the short term when the price is spiking. (over longer terms consumers will likely change their consuming habits if the price of oil remains too high)

Normal price elasticities are negative, so I assume you are trying to suggest it is positive, but that is not what the research shows in the aggregate at least. (There might be individual consumer behavior that works that way, but not for the economy as a whole.)

Estimates of short-run elasticity are here (table 3 on page 34): http://econweb.ucsd.edu/~jhamilton/understand_oil.pdf

They range from -5% (1% increase in price reduces demand by 0.05%) to -34% (1% increase in price reduced demand by 0.34%). These are low numbers, but they are not zero. There is still a curve.

The same reference includes a helpful picture that shows what I described above. See figure 4 (page 36).

[cryptoforcause]

The most immediate reason behind the crashing of crude oil prize is that the Organization of the Petroleum Exporting Countries -- a  group of 12 nations including Saudi Arabia, Iran and Venezuela that holds enormous power over global energy markets, producing 40 percent of global oil supply  --  decided on Thursday not to cut production at their meeting in Vienna.

The meeting was the most important in years, because it came amid a pre-existing slump in prices. Everybody wanted to know if OPEC would take any action to halt the decline. It didn't -- presumably because its members decided it was wiser to weather the current storm -- and crude oil prices immediately crashed.

[Seketsuna]

its still crashing though been keeping my predicions to low and eureka im still profiting.


*our fare rate is going down

[picolo]

The most immediate reason behind the crashing of crude oil prize is that the Organization of the Petroleum Exporting Countries -- a  group of 12 nations including Saudi Arabia, Iran and Venezuela that holds enormous power over global energy markets, producing 40 percent of global oil supply  --  decided on Thursday not to cut production at their meeting in Vienna.

The meeting was the most important in years, because it came amid a pre-existing slump in prices. Everybody wanted to know if OPEC would take any action to halt the decline. It didn't -- presumably because its members decided it was wiser to weather the current storm -- and crude oil prices immediately crashed.

They were producing as much a few months ago and the price was higher so it's not the reason the price is low but if they had cut their production maybe the price would have go up a little bit or decrease less.

[NewLiberty]

the shale supply has been going on for a few years, that doesn't explain why the price suddenly collapsed almost 50% in 4 months.
most shale oil production is not even profitable below 70$

something else is going on...

There is less global demand for oil.

It also potentially has to do with the fact that sanctions have been put on Russia which is a major oil exporter

This is the opposite of the truth.
Look at the data.

There is MORE global usage of oil, not less.
In fact, demand is accelerating!
With lower prices, you should expect usage will increase further and more swiftly.

This is really basic economics.  It is almost surprising to see such confusion on these things in a Bitcoin forum.

Be careful there. Demand is a curve/function, not a quantity. Increased quantity accompanied by a lower price does not itself indicate an increase in demand. This could happen with an increase in supply, along with no change in demand, or even a (relatively smaller) decrease in demand.

Also, there is a certain amount of increased quantity over time that is built into expectations and therefore pricing (absent peak oil -- but immediate peak oil is not the current consensus). "Decreased" supply or demand may in practice just be a smaller increase than expected.

It wasn't a theory or an assumption.
If you scroll up, you would notice that I was careful enough to post the actual usage data to support the claim.  Usage and demand has accelerated over all of the most recent periods measured, and the 2012, 2013, 2014 progression shows year over year increases, with some acceleration in the most recent measurements.

For ease of reference I'll repost the image here:

[Erdogan]

The oil price will continue to fall.

Yes. The production can not be taken down quickly, because that would bankrupt the involved companies, as they are heavily debt loaded. In addition, the biggest oil investments are done by governments, who do not turn around quickly, and, they need the cash flow to stagger the hordes, even if they have to loan more to keep the oil flowing.

If oil prices fall far enough then oil production can be taken offline. The reason oil companies will not stop production after only a short time of low oil prices is because it costs money to both shut down production and start it back up, plus a lot of the costs associated with extracting oil is "prepaid" with the costs associated with building infrastructure to extract such oil

Which means new investments stop, current oilfields continue as long as they are cash flow positive, consuming the invested capital in the process. We are talking about years.

And that is in a sound interest rate regime, which we don't have. More years.

[OrientA]

There are much more supply than demand this time.

[RoadTrain]

The bank can always get more money from the Fed provided with eligible collateral.

Oil is eligible collateral, but not when it is under $10 per barrel, same for housing, when price is in a long downtrend, anything becomes bad asset, and is not eligible collateral anymore

Not for the Fed, it mostly takes fixed-income assets.

[Meuh6879]

virtually, OIL producter can decrease near to 0 ... because they have plenty of gold reserve.
and other country prefer "low" price even if it's to kill the concurrence.