The 44% drop in oil price at the end of 2014 continues to confuse many experts. There are several reasons for the issue. This article lists all the reason with...
The losers in any price war will be who is left with the inventory since the price of that commodity is falling faster than when they bought or made the product. The article describes a new term in this economic price environment: “quantitative greasing”. It’s catchy and accurate. So far, we have witnessed a $1.3 trillion (or 2% of global GDP) income transfer from the oil producers to oil consumers. It appears that the oil producing countries that rely on oil to sustain government programs will soon force significant cutbacks.
The reduction in the price of oil could cause other political / economic issues in these regions. Investors are reviewing the different energy stocks for long positions along with a stronger US dollar. Saudi Arabia’s oil production accounts for 45% of GDP, 80% of the government revenues, and 30% of government spending. The other oil producing countries have their own problems with reduce oil prices, but face the same outlook of severe cuts in programs if the price continues throughout 2015. One fact lost in the spotlight of history: The drop in oil price in the mid 1980’s was a factor in the collapse if the Soviet Union.
Since oil producers are cutting back on capital expenditures by about $1 trillion, we can expect to see future oil supply to reduce which will adjust the price of oil. Thus, this current oil price per barrel is temporary, either 3 months or one year. The time is now to invest.
Gary Kapanowski – Lean Six Sigma Master Black Belt – Excelsior
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