Sunday, October 11, 2015
Oil Prices Rise up - Again
If You got your car filled up with Gas this week, You have probably noticed that oil prices went up around 35-40 cents a gallon on average. This is no coincidence and the reasons for this rise in prices can be summarized in the following 5 points. Keep in mind that the Oil market is highly susceptible to various shocks and this does not mean that these 5 reasons are the only ones affecting the aforementioned market.
1. OPEC Secretary General Abdalla Salem el-Badri announced that Global investment in the oil market would drop by 22.4 percent which essentially means that there will be a lesser supply of oil which in turn will lead to oil prices rising.
2. There has been a decline the amount of crude oil production in the US, the Us Energy information centre has reported that it expects the amount of barrels produced per day to drop from 9.2 million to 8.9 million further increasing the pressure of supply based pricing.
3. Countries like Venezuela and Russia, two major oil producers as well as OPEC members are meeting on the 21st of October to discuss the lowering demand for oil worldwide and they could in fact cut production to simulate demand.
4. The Fed is currently undecided on whether or not it will increase interest rates. If it does then that means oil companies will have a higher times financing their investment projects and decreasing oil production.
5. Ironically enough, the Iran nuclear deal meant that there was potential for sanctions to be lifted off Iran and there being the possibility of a return for Iranian oil into the market. However tensions between Congress and the US public as well as tensions within Iranian political circles have so far delayed the lifting of sanctions which means that Iranian oil reserves might not be tapped into.
http://www.thefiscaltimes.com/2015/10/09/5-Reasons-Oil-Prices-Are-Moving-Higher
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3 comments:
One would think that point two wouldn't impact oil prices because it should have already been factored into demand. This is because the U.S. has been slashing oil production for a while because it hasn't been profitable to drill WTI crude oil. However, the third point is interesting, now because Venezuela is cutting production, but because Russia is. It was only two weeks ago that Russia had announced it would be increasing oil production. The decrease in Venezuela isn't surprising because Venezuela is in a major financial crux currently.
The reduction in the production of US oil was a move engineered by OPEC about a year ago. At that time OPEC cut their price per barrel in an attempt to suffocate the smaller US companies who could not deal with the lower price. It appears to have worked.
The issue with the oil prices is that the low prices over the past year have not been strictly due to the either supply or demand nor has it been restricted to just a few countries. This creates issues all over the world. Low oil prices and higher interest rates could mean serious trouble for oil companies. Some may not be able to survive unless the price of oil increases drastically.
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