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Why Oil Price Is Sagging

The respected site oilprice.com did a summary of why oil prices are sagging, but MISSED out one big factor. 

The strengthening USD over the past few weeks. Three or four months back, the turmoil in Iraq was causing some disruption anticipation to oil supply, which have been eased following the "drones strategy with partners". 

The USD has rallied over the past few weeks in anticipation of a uptrend in interest rates there, coupled with better recovery in the US compared to other developed counterparts. However, to me the strength in USD is not that permanent but rather a rebalancing and will not rise by much from hereon.

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By Chris Pedersen for Oilprice.com

1. The U.S. Oil Boom
America’s oil boom is well documented. Shale oil production has grown by roughly 4 million barrels per day (mbpd) since 2008. Imports from OPEC have been cut in half and for the first time in 30 years, the U.S. has stopped importing crude from Nigeria.  

2. Libya is Back
Because of internal strife, analysts have until recently assumed that Libya’s output would hover around 150,000-250,000 thousand barrels per day. It turns out that Libya has sorted out their disruptions much quicker than anticipated, producing 810,000 barrels per day in September. Libyan officials told the Wall Street Journal last week that they expect to produce a million barrels per day by the end of the month and 1.2 million barrels a day by early next year.

3. OPEC Infighting 
There have been numerous reports about the discord between OPEC members, leading many to believe that OPEC will not be able to reign in production like it has done so in the past. The Saudis and Kuwaitis have reportedly been in an oil price war, repeatedly lowering their prices in order to maintain their market share in Asia. John Kingston, the news director at Platts, believes that the Saudis will not be willing to give up market share like they have done during previous price drops.

4. Negative European Economic Outlook
European Central Bank president Mario Draghi has left investors concerned about the continent’s slow growth. Germany’s exports were down 5.8 percent in August, stoking the fears of anxious investors that the EU’s largest economy had double dipped into recession last quarter. Across the Eurozone, the IMF again lowered its growth forecast to 0.8 percent in 2014 and 1.3 percent in 2015.

5. Tepid Asian Demand 
Beyond slow economic growth and currency depreciation, a number of Asian countries have begun cutting energy subsidies, resulting in higher fuel costs despite a drop in global oil prices. In 2012, Asia’s top spenders on energy subsidies, as a percentage of GDP included: Indonesia 3 percent; Thailand 2.6 percent; Vietnam 2.5 percent, Malaysia 2.3 percent, and India 2.3 percent. India is a primary example. Between 2008-2012, India’s diesel demand grew between 6 percent and 11 percent annually. In January 2013, the country started cutting the subsidies of diesel. Since then, diesel consumption has plateaued.

Comments

OwYang said…
#5. War in Middle East. When you need money to fight a war just to survive, you are more likely to pump more oil and sell it way below market price. Basic necessities for the communities is not a necessity, food and weapons are. Thus, the more chaotic the middle east is, the cheaper the price. Remember Iran-Iraq war?
durianpicker said…
1. OPEC is 'throwing' supply to destroy US shale oil industry.

2. ISIS is selling below market price from the "conquered" oil field in Iraq.

but don't think it takes too long to rebound.

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