The reason that crude oil price crashed

[medUSA]

There are many factors affecting oil prices. Generally the demand is the dominant factor, other times political too. I believe the reasons for current low oil prices are:

The price is being moved down to punish Russia for what's going on with Ukraine.
Sanctions + low oil price makes for the Russian economy collapsing, if and when they fall into line, then the price will magically rise again, but I'm sure the press will attribute it to something else.

Oil prices are falling because oil producing nations are not cutting supply. Supply is rising with demand remaining stagnant, and even dropping off some.

Additional shale oil supply from the US has upset the demand-supply balance in the oil market.

[NewLiberty]

Russia may suffer from lower oil prices, but why do you think that is a reason for them?

If it were political (US vs Russia), wouldn't you expect to see ANWR exploration and drilling started?
The US's largest oil fields are NOT being drilled, primarily because of Democrat (the party in power) opposition.

Or maybe your hypothesis is that OPEC nations have an interest in Ukraine?
Who is "punishing" Russia, and by what mechanism?   Prices do not move magically in globally traded commodities, there is some elasticity in supply and demand.

Was the high oil prices over the last few years because the US or OPEC was "rewarding" Russia?

[NewLiberty]

This is a strange discussion.  Must oil prices be a grand conspiracy that is only about some politics?
Is it impossible that there are new oil extraction methods that have become cheaper with technical advancements.
No one has heard of "fracking"?
(It is very controversial, possibly polluting ground water, but it produces oil where it was previously impossible.)

Commodities markets tend to over-react before they balance out.

Or maybe it is all just a few people playing global chess over some imagined strange excuses that make everything happen?
People look for complex excuses instead of looking at simple data.

The conspiracy is the market conspiring to find the clearing price.
Today Saudi announced it is reducing deliveries, the fracking is not economical at prices below the $60 barrels.  
At this price, new demand will arise and price will rise, then Saudi may increase delivery (or not).

Maybe many people assume that governments control everything always.  Does it feel helpless to live in such a world?

People were less shocked when prices soared for the last few years then when they fall.  They went up from war and rumors of war which are certainly political.  (Or a failure of politics)  But now it is a conspiracy when they come down?  Maybe there is a conspiracy for peace?

Very strange discussion, indeed.

What is missing in determining the value of oil from fracking, is the true and complete environmental cost.
Yes, it is delivering oil almost by magic, but it uses a LOT of water in the process and all that water + toxic chemicals used in the process are going where?

But this is probably a topic for another thread....

That thread would likely be more interesting.  It may have some science, chemistry, math.

I still can't figure out what this thread is doing on BitcoinTalk anyway.  Instead it belongs on WaPo's: Volokh Conspiracy.


There is no bitcoin discussion here, move along.

[tabnloz]

The price is being moved down to punish Russia for what's going on with Ukraine.
Sanctions + low oil price makes for the Russian economy collapsing, if and when they fall into line, then the price will magically rise again, but I'm sure the press will attribute it to something else.

yes, its financial war.

Interesting to note;

- new UKR finance minister is US citizen who formerly worked at state dept.
- US VP Biden's son is now on the board of UKR's biggest gas producer.


feels like another chapter of the shock doctrine.

[Febo]

Guess who will pay this?

No one...

Their creditors will get their assets and sell them off to other companies. That's how bankruptcy works. Unless the government takes the company into receivership and/or bails them out.

Not company but banks. That never happened in past?

[exoton]

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.

OPEC does not set the price of Oil, the market does via supply and demand. The price has gone down due to lack of demand while supply has increased (due to previously high prices).

The price of oil has nothing to do with Russia as, again the market sets the price (although Russia is suffering from lower prices).

It is possible to speculate that QE caused oil prices to be artificially high, however I would doubt this happened because it is expensive to store oil and there is only a small amount of oil actually stored at any time.

[derpberp]

OPEC decided not to cut production because they would rather weather the storm now and take short term losses (which only means less profit and aren't actually losses), in order to hold their marker dominance. The USA has started pumping oil at an alarming rate, to the point to where we were rivaling Saudi Arabia.

It costs us about 65$ a barrel to pump it via fracking. OPEC knows this. All they had to do was cut supply and oil would be 105$ a barrel again. They would rather charge less for their oil and hold their market dominance.

Why should we care? Give them the worthless paper for the oil, send it on over! Save our oil for times of need? Very capitalistic of me but its the truth.

Plus, it helps along our agenda with Russia, and increases profit margins in alot of oil burning industries.

OPEC knows that this is their only way of holding market dominance for now. It means much more profit for them to pump oil at 50$ a barrel for the next 5 years, than pump oil at 105$ a barrel and sell not as much of it and slowly lose their dominance for the next upcoming decade.

[rugrats]

This is a strange discussion.  Must oil prices be a grand conspiracy that is only about some politics?
Is it impossible that there are new oil extraction methods that have become cheaper with technical advancements.
No one has heard of "fracking"?
(It is very controversial, possibly polluting ground water, but it produces oil where it was previously impossible.)

Indeed it must. Without conspiracy theories, life would be so much less exciting.

Re fracking. No one can deny that fracking has had an effect on global oil and gas prices. If I remember correctly, between a quarter and a third of U.S. oil and gas supply are now generated from shale drilling. However, there are legitimate concerns over the short term and long term effects of the 100+ chemicals and radioactive tracers used in modern fracking methods. There are fears that many of these chemicals (which fracking companies are not required by law to disclose) are making their way into aquifers and drinking water supply and increasing ground-level ozone.

A fiery water video proving methane migration into homes: https://www.youtube.com/watch?v=4LBjSXWQRV8

[Q7]

But then we should throw this question around. How come Opec does not react to cut down the oil production. They could easily bring up the price if they want to and that is a big IF. It's a matter whether they want to do it or not. Is there some kind of agreement going on?

[NewLiberty]

But then we should throw this question around. How come Opec does not react to cut down the oil production. They could easily bring up the price if they want to and that is a big IF. It's a matter whether they want to do it or not. Is there some kind of agreement going on?

So by not doing something it is a conspiracy... or by doing something it is a conspiracy?

Even if there is no conspiracy, there must be a conspiracy not to conspire about the conspiracy.
It probably has a lot to do with Nostradamus and the trilateral commission, because oil.


Or.... maybe OPEC know that the dropping price will cut production because all these new shale sources will no longer be economical?  Market forces will take care of it for them?
They don't really have to do anything and they get everything they want anyhow.
No conspiracy is needed when the information is public and easy to find:

[picolo]

But then we should throw this question around. How come Opec does not react to cut down the oil production. They could easily bring up the price if they want to and that is a big IF. It's a matter whether they want to do it or not. Is there some kind of agreement going on?

The price of Oil going down is the sign that the USA and Europe economies are slowing down despite all the debt they are accumulating to buy some time before they fail terribly.

[2dogs]

Couldn't happen to a nicer set of banksters....

http://www.silverdoctors.com/plummeting-oil-prices-could-destroy-the-banks-that-are-holding-trillions-in-commodity-derivatives/

[freedomno1]

I think most of the QE money did not reach real economy, they went into crude oil instead (oil is also a good store of value). So now when QE has stopped, suddenly the oil market lose the continuous injection of QE money and crashed

Unlike housing, the oil crash does not hurt average consumers, but oil exporters. FED does not have to bailout those oil companies. However, the crashing oil price indicated that there are much more goods/services than dollar, so those extra oil will compete for the limited USD liquidity on the market and drag the price of everything else down in the process. Maybe eventually FED have to restart the QE again

The oil crash is simply due to an increased supply that is not related to the demand, China is scaling back on its economy with a change in leaders and this is leading to a decreasing demand for crude oil and LNG by extension.

In addition the USA has a Glut of oil from all the fracking going on over there and for once is nearing exporting status instead of importing oil from up North in Canada leading towards a decrease in North American prices, these factors together are helping to keep the price low and will likely not change for the next while.

[picolo]

I think most of the QE money did not reach real economy, they went into crude oil instead (oil is also a good store of value). So now when QE has stopped, suddenly the oil market lose the continuous injection of QE money and crashed

Unlike housing, the oil crash does not hurt average consumers, but oil exporters. FED does not have to bailout those oil companies. However, the crashing oil price indicated that there are much more goods/services than dollar, so those extra oil will compete for the limited USD liquidity on the market and drag the price of everything else down in the process. Maybe eventually FED have to restart the QE again

The oil crash is simply due to an increased supply that is not related to the demand, China is scaling back on its economy with a change in leaders and this is leading to a decreasing demand for crude oil and LNG by extension.

In addition the USA has a Glut of oil from all the fracking going on over there and for once is nearing exporting status instead of importing oil from up North in Canada leading towards a decrease in North American prices, these factors together are helping to keep the price low and will likely not change for the next while.

The oil crash is also due to a lack of demand but China is doing great, the USA and Europe are going bankrupt. China is the first world economy now.

[freedomno1]

I think most of the QE money did not reach real economy, they went into crude oil instead (oil is also a good store of value). So now when QE has stopped, suddenly the oil market lose the continuous injection of QE money and crashed

Unlike housing, the oil crash does not hurt average consumers, but oil exporters. FED does not have to bailout those oil companies. However, the crashing oil price indicated that there are much more goods/services than dollar, so those extra oil will compete for the limited USD liquidity on the market and drag the price of everything else down in the process. Maybe eventually FED have to restart the QE again

The oil crash is simply due to an increased supply that is not related to the demand, China is scaling back on its economy with a change in leaders and this is leading to a decreasing demand for crude oil and LNG by extension.

In addition the USA has a Glut of oil from all the fracking going on over there and for once is nearing exporting status instead of importing oil from up North in Canada leading towards a decrease in North American prices, these factors together are helping to keep the price low and will likely not change for the next while.

The oil crash is also due to a lack of demand but China is doing great, the USA and Europe are going bankrupt. China is the first world economy now.

I meant that China was doing great, I just meant they went from 12-15% growth a year or double digit growth, to a more relaxed pace of 5-8%.
Of course that is still a heck of a lot better than the USA and Europe which are already developed countries with their 1-3% growth rates
(But just saying if the whale (China) doesn't want to buy a ton of cement (Housing market bubble) aka those giant abandoned cities and does not want a lot of crude oil to grow the economy (Using Coal) since its cheaper, or LNG less energy per barrel but its a cleaner solution to coal. (Air quality concerns in Beijing) Then the price is going down for certain.

[OrientA]

There is over supply of oil. US is producing over 9 million barrels of oil, which is much larger than it used to produce.

[Robert Paulson]

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...

[OrientA]

The cost of some US shale producers is below $50. The cost of UK North Sea oil is about $70. These are profitable if  the oil price is over $100. A few years ago, it was expected that oil price would be over $100. There were lots of investments into oil sector. if those investors foresaw the oil price would be $70 now, they would not spend a penny into US shale or North Sea oil.

[NewLiberty]

But then we should throw this question around. How come Opec does not react to cut down the oil production. They could easily bring up the price if they want to and that is a big IF. It's a matter whether they want to do it or not. Is there some kind of agreement going on?

The price of Oil going down is the sign that the USA and Europe economies are slowing down despite all the debt they are accumulating to buy some time before they fail terribly.

NO

You are looking at the wrong numbers.

The USE of oil has risen, not fallen, so this would suggest economic expansion not contraction.  The price indicates supply and demand.  Supply has surged more than demand, so price falls.

This cheaper price should be expected FURTHER INCREASE USE, and also increase economic expansion with the exception of oil extraction (oil refining and delivery/transport/pipeline operations will expand though).

This is really very basic market economics.  Maybe many people are accustomed to "government managed" economies and so it is confusing?

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...

If you factor in the commodities futures markets, it explains it perfectly.

Most of the big oil consumer industries hedge their profitability using futures contracts.  This includes all the transport industries, and most utilities that are oil consumers.  Many of these contracts are several years out in expiration which can delay price movements and also make price move swiftly.

No strange explanations are needed beyond market economics.   Whilst it is true that some production capacity is in the direct control of some royal family and heads of state, a vast amount is simply companies doing business and not political at all.

Obama for example has very little control on price.  He can bully pulpit.  He can buy/sell from Strategic Oil Reserve (which is almost full already).  He can start wars police actions.  He can influence congress on approval/disapprovals of extraction operations in lands usurped by previous presidents as "National Parks".  None of this directly affects price or production.
He can do some really radical things like claiming imminent domain, but this would do massive damage to the American Economy as most foreign and domestic investment that can flee would do so.

So even if there is a conspiracy, who is conspiring and what can they do anyway?

[freedomno1]

The cost of some US shale producers is below $50. The cost of UK North Sea oil is about $70. These are profitable if  the oil price is over $100. A few years ago, it was expected that oil price would be over $100. There were lots of investments into oil sector. if those investors foresaw the oil price would be $70 now, they would not spend a penny into US shale or North Sea oil.

Well North Sea oil has been around since the days of the last fuel crisis.
Aka the Saudi era but true enough if they calculated fracking they would have just moved their dollars to the lowest cost area and get the gas out of there to maximize profits and keep the price down.

Once we run out of the cheap stuff then we have to go get the more expensive stuff.