So here we are, on the cusp of oil prices breaking the 2015 lows. Below this and oil is heading down to prices not seen since the mid noughties. But how did it get so low? Will it recover?
There are a bundle of reasons why oil prices have been falling steady. Supply and demand, the rising US Dollar, and of course there are conspiracy theories that the Saudi’s are trying to hurt Iran and Russia. Theories aside, most of the weakness in price comes from over supply.
Output from OPEC has remained constant, even with pressure from other nations to cut production to help firm up the price. Production in the United States has near doubled over the last six years, and Canadian exports are rising too.
All this over-supply doesn’t bode well for the price of oil, and it doesn’t look like it’s going to change dramatically very soon.
Whilst prices at the pump are tending to lag, take a look at the chart below, and where price is sitting right now.
There is a serious cause for concern from many traders that if this low breaks down, then prices could take several years to make back this ground, maybe never without some intervention. Historians will say “prices will go back up given time”, “look at the 20 year chart and you will see”. I’d say, “statistics are only there to be broken”.
Whilst that is me putting on my super bearish hat, it may not be too far away from the truth. Even a few bombing raids in the Middle East have not caused any fear. Even with IS making oil their way of funding terror.
What is clear, however, is that the price is still a weak as a kitten. It could easily slip past that low over the festive period, whilst we are all over indulging in merriness. It’s good news for the public who fill up their cars each day, but bad news for exploration, large oilers and many other industries.
The knock on affect could be a catalyst for some major shifts in other markets. The US Dollar is flying, Gold is slowly, slowly falling, and stocks.. well.. stocks just keep going up. Maybe it will take something technical such as this to break the chain.
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