Sunday, January 24, 2016

Why Oil could go to $10 a barrel?

I have wanted to write this article for some time. But, I wanted to think about it before I wrote it.

At first it made no sense to me at all why oil would ever go to $10 a barrel because No one on earth can pump oil out of the ground and sell it for $10 a barrel without selling at a loss with no profit.

But, then I realized the life blood of ANY company is it's customers. So, as a company might be going bankrupt slowly it still would want to hang on to it's customers in case it found a way to stay in business.

After I realized this I saw how oil could go to $10 a barrel for a day. And if I follow this same logic it could go to $10 a barrel or even 5cents a barrel or a $penny a barrel for a short time.

So, also using this logic it could go to $10 a barrel for a day, a week or a month.

But, what if some country like Saudi Arabia wanted to steal everyone's customers? (It wouldn't have to be Saudi Arabia by the way it could literally be any country trying to corner the oil market and trying to put every other oil company from other countries out of business.

If this happened that country (whoever it might be) might keep the price of oil at say $10 a barrel for a year.

So, what would happen?

I think at some point most oil companies would just stop selling oil at that price and hold out for a higher price rather than to sell at such a loss.

Because at some point in the near or far future oil will be money in the bank. (It's just not certain when that will be).

It could be this year, next year, 5 years from now etc.

So, this is the unknown here. When will oil return to 150 to 200 dollars a barrel?

I think if it is going to do this it has to be in the next 5 years. Otherwise it will never recover because Solar within 10 years will be cheaper worldwide than oil.

So, it is also possible that if that country holds out at a low price too long that oil would never recover ever. That is a possibility too.

So, in that scenario countries dependent on oil revenue would literally dry up and blow away in the new paradigm (along with likely all oil companies on earth).

If businesses (over several years) cannot operate at a profit they usually cease to exist within 10 years at most. (or they are bought by other companies).

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