Archive for the ‘world oil supply’ Category
In this post I present some of my observations and thoughts about the developments in the oil price, supply and demand, exchange rates (relative to the US dollar), petroleum stocks and what near term factors are likely to influence the oil price.
- The price of oil (and other commodities) appears to have been influenced by the central banks’ policies post the GFC of 2008 (Global Financial Crisis, primarily the Fed as the US dollar is the world’s major reserve currency) with low interest rates which allowed for growth in total global credit/debt.
- As the Fed confirmed its end of QE3 (QE; Quantitative Easing) program by the fall of 2014, the oil price started to decline. This decline became amplified by an oversupply resulting from years of debt fueled high capital expenditures by the oil companies to develop supplies of costlier oil for the market to meet expectations of growth in consumption.
- With the end of QE3 the US dollar rapidly appreciated versus most other major currencies, which offset some of the decline in the oil price in most economies (oil is priced in US dollar), the exceptions being the US and China (which has its currency pegged to the US dollar).
- Demand and consumption of oil (actual data so far only for the US) responded to the price collapse by some growth. However the world’s growth has not been sufficient to close the gap between supplies and consumption, thus sustaining a downward pressure on the oil price.
- The oil price collapse motivated oil companies with low variable costs (OPEX) to compensate some of the loss of cash flow by increasing their production (volumes), thus creating a dynamic where growing supplies went looking for demand.
- The oil price collapse and a period with a favorable contango spread incentivized a strong build in stocks and as stocks remain at elevated levels, it may take some time before stocks return to “normal” levels.
- As growth in global credit/debt slows, comes to halt or deleveraging sets in, this will affect demand and prices, also for oil.