Oil Prices Plummet – What Does It Mean?

The big news over the past 48 hours has obviously been OPEC’s surprise decision “not” to cut oil production.

In a world of increasingly “lower demand” for oil ( further confirmation of a truly “global slowdown” ) The Saudi’s have opted to sustain production of 30 million barrels per day, keeping market share and putting a real squeeze on The American shale / fracking business, that generally needs to see oil at 75-80 barrel just to remain profitable.

The net effect is generally perceived as “net negative” for oil exporting countries, and could also be a potential catalyst for weakness in U.S equities, with indices carrying “significant weighting” of oil / energy related companies.

The Saudi’s can produce oil much , much cheaper than other nations so in keeping production output high ( and in turn driving prices lower ) there may be more to this than first meets the eye.

A strategic move to drive other oil exporters ( in particular The U.S with it’s high costs of production ) out of the market? 65 dollar bbl oil puts the majority of U.S oil exporters on the back foot and potentially “out of business” should these price levels remain, not to mention driving home the point that “indeed” global demand for oil is certainly on the decline.

I believe it was a 35-40% decrease in the price of oil that also proceeded equities downturns in both 2008 as well 2011.

We are almost exactly at the same point with oil prices as of this morning, so it remains to be seen “what reaction” we may see here in the West as markets digest the information.

First the currency war and now perhaps a “commodity war”? Needless to say….never a dull moment here these days – with “yet another shocker” rippling through markets here this week.

Let’s see what The Central Banks do next right? As this has absolutely nothing to do with you or I.

3 Responses

  1. Guy November 28, 2014 / 9:33 pm

    Consumers in the U.S and globally are getting relief from the lower price of oil. Personally i am enjoying paying the lower cost for transportation and don’t think it is at the point of becoming an impediment yet.

    U.S Shale companies carry huge amounts of debt and there is no doubt that if price goes lower and remains for a prolonged period of time some will be unable to service that debt. A lot of them however are hedged and have their price locked in at least through the first part of 2015 so it will be interesting to see what happens if we sustain the lower prices deep into next year.

    Of more immediate concern is Russia, Iran & Venezuela. These countries do not have the large reserves like Saudi Arabia and will not be able to sustain their budgets with oil at such a low level. Canada and Mexico are also countries that will have to be watched closely as those countries rely heavily on a high oil prices in their budgets.

    We do have to remember that oil dropped to $10 a barrel in 1986 with the Saudis increasing production to force U.S companies out and i think we all can look and see the S&P had a tremendous rally for many years after that almost 70% drop in price.

    In conclusion Kong I think that a low price sustained over a long period will have consequences but i don’t think that it will have a huge Macro effect on the U.S economy. More of a micro effect on certain regions and companies in specific sectors.

    Back to my couch Kong for more beer and chips. Have a good rest of your weekend man!

  2. Anonymous December 3, 2014 / 2:08 pm

    Your customers must see you now for the putz you really are. Your research and assumptions are stuck in the 20th century loonie tunes! All You USA bashers don’t have a clue, do you??? Love to see you get crushed…becoming a bit of a hobby of mine! Oh yeah, at least have the integrity to post your profits with accuracy, which they clearly are fudged, LOL.

    • Pot Stock Watch December 3, 2014 / 3:02 pm

      U.S.A bashers…….hilarious.

      I guess that makes you a “U.S flag waver” then?

      Open your eyes to the world around you kid….everyone has an opinion / view.

      If you consider dividing the planet in half ( even simple east vs west type thinking ) I imagine “at least half” this world has a tainted view of The U.S no?

      “Love to see you get crushed…becoming a bit of a hobby of mine!” – hey……that’s a great hobby you’ve got there!

      I can only imagine how popular you must be. People must just flock to you!

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