HH Why The Price Of Oil Is More Likely To Fall To 20 Rather Than Rise To 80

This is just the beginning of the oil crisis.  Over the past couple of weeks, the price of U.S. oil has rallied back above 50 dollars a barrel.  In fact, as I write this, it is sitting at $52.93.  But this rally will not last.  In fact, analysts at the big banks are warning that we could soon see U.S. oil hit the $20 mark. The reason for this is that the production of oil globally is still way above the current level of demand. Things have gotten so bad that millions of barrels of oil are being stored at sea as companies wait for the price of oil to go back up.  But the price is not going to go back up any time soon. 

Oil - Public Domain

Even though rigs are being shut down in the United States at the fastest pace since the last financial crisis, oil production continues to go up.  In fact, last week more oil was produced in the U.S. than at any time since the 1970s. This is really bad news for the economy, because the price of oil is already at a catastrophically low level for the global financial system.  If the price of oil stays at this level for the rest of the year, we are going to see a whole bunch of energy companies fail, billions of dollars of debt issued by energy companies could go bad, and trillions of dollars of derivatives related to the energy industry could implode. In other words, this is a recipe for a financial meltdown, and the longer the price of oil stays at this level (or lower), the more damage it is going to do.

The way things stand, there is simply just way too much oil sitting out there. And anyone that has taken Economics 101 knows that when supply far exceeds demand, prices go down

Oil prices have gotten crushed for the last six months. The extent to which that was caused by an excess of supply or by a slowdown in demand has big implications for where prices will head next. People wishing for a big rebound may not want to read farther.

Goldman Sachs released an intriguing analysis on Wednesday that shows what many already suspected: The big culprit in the oil crash has been an abundance of oil flooding the market. A massive supply shock in the second half of last year accounted for most of the decline. In December and January, slowing demand contributed to the continued sell-off.

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Comments

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K J George Karrikkoottathil 4 years ago Member's comment

This is not good news. The only way out is production cut by all oil producing countries for at least a 90 days period to stabilize the production/demand level. The planned or already started developmental activities of countries will demand continuous production. A way out is to be found instead of allowing total collapse as soon as possible.

Bob Black 4 years ago Member's comment

I thought the oil companies told us there was a shortage of oil a few years ago.. could they have lied??

RAJA RATNA Sekhar 4 years ago Member's comment

If the American not produce his capacity of Industrious they will become soup. Than they want to save his company the oil court y become soup. Hence Arab coutry should comprise with USA and do stop the further cries. Whatever may be Indian going to pay high and fill the BJP credit.They BJP Government cheating the Indians through selling oil rate by high other than any country. WE ARE THE PROUD INDIANS.

Sam-The-Realist 4 years ago Member's comment

$65 and rising...

Angry Old Lady 4 years ago Member's comment

Well, the article was written back in February.

Nathaniel March 4 years ago Member's comment

We are talking about the future. No one knows it but a few will guess right by the laws of probability. Then they will be called experts and write columns with their predictions using their guesses as proof of the brilliance. So comment all you want but whatever the future brings it won't be what we thought it might be. It never does

Scott Lane 4 years ago Member's comment

then why has the price at the pump not dropped to match

Mary Mantous 4 years ago Member's comment

Simple, the oil companies have reaping a huge profit by fleecing us when we relied heavily on oil, but now they have lost their stranglehold. So, sites like this say we should support the likes Exon and BP. It's a bit like asking a beggar to give up his takings because Trump wants another glass of champagne before breakfast, the breakfast we paid for

Gert Daniel Van Niekerk 4 years ago Member's comment

It's like a big discount sale, you get stockpiling!!!! When the demand stays the same, the prices keeps reasonable stable The challenge in the fuel industry is different, competitor markets are increasingly coming into the fuel industry and with Porters 5 Forces, that means just 1 thing, dangerous levels of lower demand against higher supply......101 Economics, Prices fall dangerously!!!

Ron Wolf 4 years ago Member's comment

I'm just curious...but all this data seems a bit out of balance as many have said. When you step back a few rounds and look at the really big picture...I have to wonder why the oil prices would keep dropping...but production keeps going up with none of the card players wanting to back down from their high production. They know something we don't. To me...this looks like "stock piling" of oil...as a prelude to war. Is this possible??? Iran...or even Russia??? Please let me know your thoughts...I'm just curious. Cheers!!!

Ken Larson 4 years ago Member's comment

It's all about keeping the dollars low so terroists selling oil don't get much. Less money, Less Weapons.

Russ George 4 years ago Member's comment

Oil prices are dropping as oil reserves become a stranded asset as a result of an unexpected black swan. Of so the Saudi oil minister seems to think. atom-ecology.russgeorge.net/.../saudi-oil-minister-says-kingdom-prepared/