Wednesday, March 18, 2015

The actual cause of lowering oil prices is very complicated

I've written about this before but I really don't see my point of view written about much. I'm not sure exactly why that is but likely it is political more than anything else.

Reasons the oil prices likely will tend to drop to around $20 a barrel or less over time:

1. China is using lots less oil

2. Shale oil has increased the amount of available oil so there will be a glut ongoing

3. number 2 is a good thing for the world in the long run but in the short there will be a lot of pain regarding companies and nations who are oil dependent in order to function as nations like Russia, Venezuela and others.

4. Saudi Arabia and other Sunni oil nations need to reduce the price of oil in order to defund ISIS which is primarily funded by people with oil interests there in the Middle East.

5. Shale oil producers know now that oil exploration money might dry up for 10 years or more after this. So, if they don't want to lose all their investments and potentially go bankrupt they need to keep mining for shale and converting it to oil almost no matter how low the price goes just to stay in business at this point. If they are driven out of business by this that will be it for good and they know this.

6. Russia's and Iran's persecution of Sunnis throughout the world increases Saudi and Sunni Oil nation anger against them and increases also their need to lower oil prices.

7. Though I have said before that when the ISIS army is defeated oil prices will rise. However, there is another factor which is individual oil people in the middle east that financially have supported ISIS might want further revenge on Russia and Iran and keep the prices low out of spite to Russia and Iran to try to bankrupt them completely. However, oil companies throughout the world might be bankrupted too by this tactic and that would be collateral damage in this ongoing war both economic and bloody.

8. It is unknown what Russia and other oil dependent governments are going to do out of economic desperation to keep their people from overthrowing them.

I would say we are definitely in  the middle of an Economic World War with oil being used as the weapon of choice in regard to pricing and pricing is being affected by there being too much available at the same time worldwide.

And this is likely to get much worse because this is now a world wide economic war based upon oil prices unfolding now. And the consequences cannot fully be predicted yet either in the short run or the long run.



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