As oil prices continue to fall, analysts and producers are trying to wrap their heads around the reasons and identify a floor price. Even though crude benchmarks like Brent and WTI keep dropping, the cost of finding oil continues to rise. What are some of the key drivers that have created this paradox?
1. The U.S. Oil Boom
America’s oil boom is well documented. Shale oil production has grown by roughly 4 million barrels per day (mbpd) since 2008. Imports from OPEC have been cut in half and for the first time in 30 years, the U.S. has stopped importing crude from Nigeria.
Related: Dropping Oil Prices Send Shockwaves Through Energy Sector
2. Libya is Back
Because of internal strife, analysts have until recently assumed that Libya’s output would hover around 150,000-250,000 thousand barrels per day. It turns out that Libya has sorted out their disruptions much quicker than anticipated, producing 810,000 barrels per day in September. Libyan officials told the Wall Street Journal last week that they expect to produce a million barrels per day by the end of the month and 1.2 million barrels a day by early next year.
3. OPEC Infighting
There have been numerous reports about the discord between OPEC members, leading many to believe that OPEC will not be able to reign in production like it has done so in the past. The Saudis and Kuwaitis have reportedly been in an oil price war, repeatedly lowering their prices in order to maintain their market share in Asia. John Kingston, the news director at Platts, believes that the Saudis will not be willing to give up market share like they have done during previous price drops.
Related: LEGO Bows To Greenpeace Campaign, Breaks Ties With Shell
4. Negative European Economic Outlook
European Central Bank president Mario Draghi has left investors concerned about the continent’s slow growth. Germany’s exports were down 5.8 percent in August, stoking the fears of anxious investors that the EU’s largest economy had double dipped into recession last quarter. Across the Eurozone, the IMF again lowered its growth forecast to 0.8 percent in 2014 and 1.3 percent in 2015.
5. Tepid Asian Demand
Beyond slow economic growth and currency depreciation, a number of Asian countries have begun cutting energy subsidies, resulting in higher fuel costs despite a drop in global oil prices. In 2012, Asia’s top spenders on energy subsidies, as a percentage of GDP included: Indonesia 3 percent; Thailand 2.6 percent; Vietnam 2.5 percent, Malaysia 2.3 percent, and India 2.3 percent. India is a primary example. Between 2008-2012, India’s diesel demand grew between 6 percent and 11 percent annually. In January 2013, the country started cutting the subsidies of diesel. Since then, diesel consumption has plateaued.
By Chris Pedersen for Oilprice.com
More Top Reads From Oilprice.com:
- Does This $1.5 Billion Shale Purchase Signal A Change?
- The Oil Weapon: A New Way To Wage War
- The Role Of Oil Prices In Global Financial Markets
(electric vehicles would be 7th on my list, well below LENR, which is the genie that's been let out of the bottle).
1) Efficient hybrid vehicles and other technical advancement in automobiles that increased the efficiency from 20 miles/ gallon to 26 miles/ gallon. Hence reduced 30% consumption.
2) Most of vehicles and industry has been shifted on gas which is near substitute of petroleum products.
Russia give asylum to Snowden.
USA support the revolution against (Russian friendly) Ukrain prime minister Yanukovits
USA supports and give weapons to revolution against Syria prime minister Bashar Al Ashand. Since this is also Russian friendly prime minister and bougth weapons only from Russia.
USA government is responsible for the two wars that cost thousand of lives and now try to hit oil prices to strike Russian Economy.