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|Posted on November 24, 2014 at 4:05 PM|
I had suggested a few months ago that the Oil price should be down, as had Oppenheimer chief economist Fadel Gheit.
Now it is down, well below $85. At this level, I believe it is overdone, now at around $76 for Brent Ice and $71 for West Texas Intermediate.
Most of the economies who export oil would not find it viable to be producing at $70 a barrel - there would be no profit.
The only exception is Saudi Arabia. Some have suggested that they would be profitable producing it at an even lower price. However, the supply and demand dynamics as well as the political advantage would tip outside their interest, and economically, they would be throwing away their clout in the market by making it cheaper. Under $70 a barrel will hurt a lot of the Oil exporting nations and their balance sheets. Their infrastructure development projects would probably come to a halt in a short while, and that - forgive me pointing out - may induce a contraction in the world economy, that most people would rather not see.
In their own best interests as well as that of other OPEC nations, this Friday's meeting in Vienna I predict will produce a tightening on production quotas to restore the value of Oil.
It is suggested that Russia may be reducing their production by about 300,000 barrels a day; if Saudi Arabia cuts their production by around a million barrels a day, the demand-supply dynamics may restore the price upwards. The winter in the Western hemisphere is predicted to be cold, which will necessitate more fuel use. If the price is restored upwards, that in fact would be best for the world, so all economies can continue as before (and better for those obtaining Oil at the current lower prices) without harming anyone too much.
The world will be waiting for some sensible decisions in Vienna this Friday.
Durudarshan H. Dadlani
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