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As oil producers clear their long term investments in oil drilling, the price of oil continues to slide, hovering around $50 per barrel. With many experts forecasting this level for many years, we need to fully understand the issues behind the price. Supply increased over the last decade mainly due to shale and the overall US export of oil. The demand reduced lately due to the slowing down of the global economy. This is the macroeconomic effect of the drop in oil price.
Within the details, this has political implications. The lower price is to provide a rude awaking to aggressor nations. In an economic war, you might not see the end result of war, but you can hear it in the voice of the leaders.
Overall, I see this as a temporary issue. With the increasing world population and the oversupply under 10%, there is no runaway inventory to be used before reaching equilibrium. Expect +$80 price for oil by the end of the year.
Gary Kapanowski – Lean Six Sigma Master Black Belt – Excelsior
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