Cramer: Oil problems are bigger than just Saudis
Jim
Cramer smells a fish. Could low oil prices really stem from Saudi
Arabia? There is a perfect storm brewing, and it's not a Saudi storm.
CNBC
- Energy Industry
- Oil, Gas, & Consumable Fuels
- Jim Cramer
The market can no longer ignore the elephant in the room: Oil is going down. WTI crude reached its lowest level since August 2011 on Tuesday, which left many investors wondering, what is going on?
Jim Cramer smelled a big, fat, floppy oil fish. Could it really be just the Saudis stirring the pot or is there more to this story behind the scenes?
"Believe me it's not just the Saudis' decision to cut prices that is causing oil to go down. The Saudis don't export enough to us … to destroy our booming domestic drilling industry," said the "Mad Money" host.
Cramer added that there is a perfect storm of issues happening. First, there is the weakening global economy. The world outside of the U.S. is weakening, which means oil is getting cheaper as well. Additionally, the U.S. is still importing oil. In the long term, the Saudis can flood the market to reduce reduce drilling, but they wouldn't be able to dump as much oil into the U.S. if global economies were stronger and able to use more oil.
To top it off, oil is priced in U.S. dollars. That makes oil more expensive for the world as our currency gains strength. Europe isn't exactly getting a deal on oil if the Euro is weakening.
Don Klumpp | Getty ImagesThe second issue stems from overproduction of oil in the U.S. There has been a 71 percent increase in oil production since 2005, along with increased popularity of fuel-efficient cars and trucks.
"We do not have the storage space nor the pipelines to get this oil to market, and the price discounts that are available in our country are, in the most landlocked places, well below whatever the Saudis are charging," said Cramer.
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The U.S. has reached its tipping point for the amount of oil that can build up. That, combined with the weakening global economy, is creating the perfect storm for oil prices.
So, while it would make things a lot easier to just blame the Saudis, Cramer just doesn't think that is the case. The good news is that there will obviously be a self-correcting price somewhere. It just isn't going to be in the mid-70's.Call Cramer: 1-800-743-CNBC
Questions for Cramer? madmoney@cnbc.com
Questions, comments, suggestions for the "Mad Money" website? madcap@cnbc.com
end quote from:
http://www.cnbc.com/id/102152194?__source=yahoo|finance|headline|headline|story&par=yahoo&doc=102152194#.
Yes. He's right! It is the Saudis plus demand for oil weakening because of Asia recession growing and possibly because of the European Recession as well. This is going to kill oil drilling around the world as long as this keeps going down. It is also going to kill shale oil which needs a higher price for people to take it out of the ground all over the world. The shale oil boom is about to bust if it hasn't already worldwide. And this will continue as long as the price of oil slides on down to possibly zero before it goes back up to 20 to 30 dollars a gallon sometime in the next 10 years. What goes down must come up at some point. Theoretically speaking.
There is one more possibility. This could be the end of oil as we have known it throughout the 20th and 21st century because of solar power(and wind power) now being more cost effective than oil throughout most of the world.
However, in some ways this could be a good thing because we will always need lubrication and plastics. So, this way we will always hopefully have enough oil for lubrication and plastics ongoing for mankind.
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