Thursday, February 6, 2014

Oil producers and traders are worried. The price of crude keeps falling and analysts say it could drop as much as 20% in the next two years. For you and me that's wonderful news which could eventually translate to an 8p per litre reduction at the pumps. What's really spooking the Oil Royalty is that the falls in price could be unstoppable. We know that oil prices have been unusually high since 2011 and that's because the industry could broadly control prices, keeping supply slightly behind demand and massaging the benchmark price so it stays above $100 a barrel. But several things are happening which suggest they may have totally lost their control of the market.

 

America is now exporting more oil than they import and by 2015 will be the largest oil producer in the world. And that means OPEC won't be able to move prices by deliberately reducing supply. Iran and Iraq have more oil reserves than Saudi Arabia and if sanctions are lifted, their combined oil output will be greater than the Saudis and could push prices down even further. Libya is also producing more oil creating more supply on to the world market. So there's likely to be a glut of oil in the next 12 months with all these new producers churning out all this new oil.

 

Throw in the fact that demand has, and will continue, to fall and the world's oil supply/demand dynamic has dramatically changed. US consumption has fallen 10% since its peak in 2005, the Chinese economy is slowing and so is their consumption of crude. We've seen the huge impact that the new breed of fuel efficient cars have had on European consumption and this is beginning to be reflected in America and elsewhere. An oversupply of oil and a fall in global demand means only one thing - softer prices and no more spikes.

 

But the really significant thing here is that all these different sources of supply from the US, Iran, Iraq and Libya can't be controlled by the traditional oil producers and these new entrants will compete against the market for the most competitive price. And that's not just unprecedented, it should remove most of all the shadowy manipulation of prices that's been going on for so long. The world needs a free and competitive oil market and we just get it sooner than we've hoped. Fingers crossed.




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[ posted by Karen McDonald, 08.02.14 14:25 ]

I'm not in business, I don't own a car, but even I know that when fuel prices rise, everything that depends on that fuel, also gets a price hike. That means food, too, cos that has to be grown and transported, and without fuel, it ain't gonna happen.

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