Oct 132014
Good Day Everyone,
I was talking with an oil trader friend today, he is in the middle of a trade on Iraqi oil and he was ranting about the price/supply/production of crude.
His position is that if the OPEC countries cannot settle their split the price of oil will settle down to be less than $50 USD in just the next few months. If this happens, he says, the US oil production will stop. The cost of pumping oil in the Dakotas is $60 USD.  He continues to say that all drilling and pumping will stop in the US. Who wants to pay more for US pumped oil when you can buy for less.  He predicts the price of gas at the pump to sink to under $2.00 USD.
The article below addresses this position pretty handily.   Mike

  Global Glut Keeps Pressure on Oil Prices

Crude Producers Keep the Spigots Open Amid Lax Demand

 Traders are becoming increasingly convinced that the world will remain awash in oil.



Crude prices have tumbled more than 20% since mid-June. The global benchmark, Brent oil, dropped to a near-four-year low of $88.89 a barrel on Monday, and the U.S. benchmark dropped to $85.74, a 22-month low.

Instead of cutting back on output, to help reduce supplies and increase prices, oil producers—from U.S. corporations to oil-rich nations—are keeping the spigots open. And there is little sign that global demand will rise quickly enough to help erase the glut.

Until recently, many investors expected that members of the Organization of the Petroleum Exporting Countries would collectively cut production. Such a move would quickly bring supply and demand back in line and likely spur a rebound in prices. But a rift within OPEC is making a reduction in oil exports look less likely at the group’s meeting next month. That sets up the oil market for a slow grind lower, investors and analysts say.

And within the U.S., companies also can remain profitable with prices at current levels.

Traders and analysts say that means oil prices could drop below $80 a barrel before producers in the U.S. and elsewhere feel enough pressure to ease back on output.

At current prices, “this is not going to lead to a decline in U.S. production,” said Ed Morse, global head of commodities research at Citigroup Inc. Many OPEC members need higher oil prices to balance their budgets than U.S. producers need to keep drilling, he said. “It would be a tough struggle to say who is going to get hurt more, the U.S. oil producer or the OPEC oil producer, at a significantly lower price than today.”

Full story: http://online.wsj.com/articles/opec-competition-pushes-crude-lower-1413194740

 Posted by at 5:14 pm