By: David Sterman of Street Authority
When it comes to commodities, you'll usually find a set of countervailing forces that keep prices at an equilibrium. Yet when it comes to oil, all of the factors behind price swings are heading in the same direction. As oil prices head lower yet, investors will feel both pain and gain -- depending on the make-up of their portfolios.
A Perfect Storm
For much of the past year, a barrel of West Texas Intermediate Crude fetched around $100 a barrel on the spot market. Yet since late July, a series of factors have conspired to push prices lower:
-- A rally in the dollar, which tends to push all commodity prices lower.
-- A further slowing in the European, Japanese and Chinese economies, which crimps demand.
-- A surge in output in Libya to 800,000 barrels a day, up from 240,000 barrels a day in June amid civil war skirmishes near key oil installations.
-- An oil production surge in Russia, which is back at peak post-Soviet era levels.
-- A rapidly rising output in Kurdistan as new key oil installations come on line.
-- OPEC's recent inability to curtail production as much as the market had hoped, leading to talk that this cartel may be weakening as market share becomes more important than pricing discipline.
Of course, the elephant in the room is the United States, which is single-handedly disrupting the global supply and demand trends on a massive scale. U.S. oil production has already surged from five million barrels a day in 2008 to 8.5 million barrels a day in August 2014, according to the Energy Information Administration. The more we produce, the less oil we import. Analysts at Citigroup note that oil imports are now nine million barrels per day lower than they were in 2007. It’s important to note that some of the reduction is due to a drop in consumption as we now drive more fuel-efficient cars. Continue reading "The Winners And Losers Of The Perfect Storm Hitting Oil Prices"
