It's the end of the semester and oil prices are low. What better time to give my thoughts on the inevitable catastrophic low oil price story.
The epic oil crash could end next year.
EPIC! Can you feel it, see it, hear it today?
But before prices start to climb higher, they could go even lower.
...or higher. But probably lower. Definitely lower. Yeah, lower. Maybe.
It's been a catastrophic 18 months for crude oil, which has suffered a dramatic 68% plunge due to a massive supply glut.
Perspective rewrite: It's been a glorious 18 months for consumers of crude oil based products, who have reveled in low prices due to a 68% decrease in oil prices thanks to increased production.
Oil fell to a fresh seven-year low below $34.50 a barrel on Friday.
...and Hotelling wept.
Many Wall Street oil experts believe that prices will rebound in late 2016.
Is there oil on Wall Street?
Yet more pain may be inflicted -- some say it's actually needed -- before prices bounce higher.
Can you imagine writing about the disappointment in low prices in other industries?
"Yet more pain may be inflicted before car prices bounce higher."
"Yet more pain may be inflicted before chocolate prices bounce higher."
"Yet more pain may be inflicted before movie prices bounce higher."
"It's still a long road ahead. The oversupply problem will be with us for a little while," said Mike Wittner, global head of oil research at Societe Generale.
...maybe we need a cartel of oil producing countries that can keep oil prices artificially and inefficiently high for a long period of time.
Goldman Sachs wagers that crude oil will average $38 a barrel in February. That's lower than prices were for most of this year.
Pete Rose was banned from his industry for life for wagering. Just sayin'.
The problem is that the long-awaited "rebalancing" of the global oil market has yet to happen.
I don't know what that means.
In other words, the world's supply of oil remains far above its demand. The supply glut was mostly created by skyrocketing American production.
Oh, it means that the global oil market doesn't understand Econ 101. When Supply is 'far above demand' there is a surplus, which will create downward pressure on prices. When there is downward pressure on prices, prices go....wait for it...DOWN. Like to $34.50 a barrel. Like they are now. Sounds like a pretty good rebalancing act to me.
But OPEC, led by Saudi Arabia, has exacerbated the issue by pumping oil ferociously. It's a strategy designed partly to pressure American producers out of the market.
Competition sucks...for inefficient producers. But guess what. Hummer loving consumers love low price Hummers.
Get your mind out of the gutter.
OPEC declined to cut production when it met earlier this month, reinforcing the idea it's not coming to the rescue of oil markets.
...or reinforcing the idea that OPEC is no longer a functioning cartel.
And YES, I do recognize that I failed to account for any externalities associated with the consumption or production of oil. That's for other posts. This snark-filled post is simply a demonstration of how prices fluctuate in well-functioning markets...and who benefits and who loses. It sounds odd to call the oil market well-functioning, but it seems like its about as close to a competitive market as it has been in my lifetime.
Now for those pesky externalities...