7 Reasons Oil Prices Will Continue to Tumble
As reported by Oxford World Financial Digest: Fortune magazine has run an engaging and enlightening article, written by market analysts, which argues that there are seven signs why oil prices will continue to drop. The first reason is that the world is flooded with oil. US production is near a thirty-two year high at near 9.4 mbd. Secondly, oil producers are not curtailing their output and the US is producing 14.5% more oil than this week last year, meaning supply will continue to grow. Thirdly, the demand side is flat, and perhaps falling, as OPEC is forecasting that demand for oil will hit a twelve-year low in 2017, when the world will need 600,000 less barrels of oil per day. The fourth reason is that Saudi Arabia can stand low oil prices. Because of their ultra-low cost of production (~$10) and huge foreign reserves, they are comfortable riding out this period of low prices. Fifthly, and very interestingly, oil fields are more profitable than many believe—a survey of 2,222 oil fields recently found that only 1.6% would have negative cash flow at price of $40 per barrel. The sixth reason is that many oil-exporting countries, such as Russia or Venezuela, have no choice but to keep producing oil no matter the price, as shutting off their pumps would be economic suicide. Finally, the last reason is that it is becoming increasingly hard to store oil as the US is running out of space to do so.
