[GHung]

The 2014 Oil Price Crash Explained

Posted on November 24, 2014 by Euan Mearns

In February 2009 Phil Hart published on The Oil Drum a simple supply demand model that explained then the action in the oil price. In this post I update Phil’s model to July 2014 using monthly oil supply (crude+condensate) and price data from the Energy Information Agency (EIA).

This model explains how a drop in demand for oil of only 1 million barrels per day can account for the fall in price from $110 to below $80 per barrel.

The future price will be determined by demand, production capacity and OPEC production constraint. A further fall in demand of the order 1 Mbpd may see the price fall below $60. Conversely, at current demand, an OPEC production cut of the order 1 Mbpd may send the oil price back up towards $100. It seems that volatility has returned to the oil market....
more: http://euanmearns.com/the-2014-oil-pric ... explained/

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[GoghGoner]

Black Swans and elephants in the room – with conflict escalation in Ukraine and / or Syria-Iraq and a new credit crunch, all bets will be off.

I attribute the fall in commodity prices to a reduced economic activity in Asia and Europe. The metals index has forecast this since 2011. Copper is usually the ringleader. Oil usually leads food/beverage prices.

In May 2011 there is a significant and curious excursion to lower production not accompanied by a fall in price. This coincides with Libya coming off line for the first time and the loss of 1.6 Mbpd production. It seems possible that this coincided with weak demand and the fortuitous loss of production cancelling weak demand leaving price unchanged.

The reason we didn't see a rise in oil prices in 2011 is because we were in a deflationary environment for commodity prices. Oil managed to treadwater for almost 3 years because of supply bottlenecks.

http://www.indexmundi.com/commodities/?commodity=non-fuel-price-index&months=240

[americandream]

The wresting of Iraq and Libya out of the hands of unpredictable supply managers (Saddam and Ghadaffi) is finally beginning to pay dividends. Iran is slowly and almost imperceptibly coming to heel and this ISIS nonsense is just a distraction. There will be negotiations behind the scenes to pacify them and engage with them Saudi style. Islam makes a good ally in the management of these energy sources despite all the hulla baloo.

I am anticipating another bubble in the next year ns we enter another boom cycle. Not for the American workers, I might add. Labour worldwide can expect fewer and fewer asset building benefits (of the housing boom days) although consumer prices in luxuries from China are set to tank. So all in all, it looks to be another happy, happy spell for growth. BRICS will be coming into its own and I anticipate a tie up with the G7 as Russia finally gets put in its corner. So happy motoring folks.

[radon1]

Pick up your choice.

1. "Reduced economic activity", slowing of the world economy, lower demand for oil.
2. Unwinding of long-term long positions in crude oil, panic selling.
3. US wants to punish Russia (Venezuela, Iran) and conspired with big banks to short crude oil.
4. US wants to punish Russia (Venezuela, Iran) and conspired with KSA/OPEC to maintain ample supply.
5. US wants to placate its citizens and conspired with...to lower gas prices.
6. KSA/OPEC want to crash US shale producers and therefore maintain ample supply.

[dolanbaker]

1!

[AndyA]

WTI at $65, how are those PO.com oil price challenge forecasts looking? LOL
I'll admit I never expected this a year ago.

Islam makes a good ally in the management of these energy sources despite all the hulla baloo.

I'm not sure if you are being sarcastic or what.

[ROCKMAN]

Andy - "I'll admit I never expected this a year ago." Just as few expected the inflation adjusted price of oil to drop from $106.36/bbl in 1980 to $68.32/bbl just 3 years later in 1983. Or $30.80/bbl just 6 years later in 1986.

IMHO one cannot over emphasize how much more control economic activity has on the price of oil then the supply side of the equation.

[dolanbaker]

Brent just dropped to $70 before rain stopped play.
Monday could be interesting.