What Is actually Driving Oil Costs
Just two weeks in the past I wrote about falling oil costs. Gas costs had crashed under the $2 mark. Oil was trading beneath $50 a barrel for the primary time in months. The inflation risk which built all summer season lengthy has disappeared. Now the large concern is deflation and the global financial slowdown.
Imagine it or not, the worldwide financial system is going to affect oil costs greater than anything.
Oil producing nations and OPEC are concerned oil prices are too low. They’re trying to artificially prop up costs by slicing provide. It doesn’t matter how they play with provide. The economic slowdown is stifling demand.
Long term, oil costs are heading larger.
But for now, they’re going to trend decrease… much lower.
OPEC had an enormous meeting in Cairo this weekend. It was an unofficial event. But many traders assumed they’d announce one other lower in production. That is why oil traded up from $49 to simply over $fifty five final week.
There wasn’t a production lower, however tension is apparently forming within the cartel.
The Saudi Oil Minister noted it was “too early” to make another output lower. Remember it was only some weeks ago, in late October, when output was lower by 1.5 million barrels a day.
But the Iranian Oil Minister had a unique take. He introduced on state Tv OPEC would look to cut manufacturing in December by 1 to 1.5 million barrels a day. He wanted to “restore oil costs to $90 per barrel.”
Oil prices traded lower on the information… significantly lower. Cuts in oil production won’t matter for a while.
Why the disconnect
It’s the financial system. Economic information from the EuroZone, Nice Britain, and China is depressing. In keeping with China Daily News the Purchasing Managers’ Index (PMI) for China’s manufacturing sector dropped 5.Eight share points in the course of the month.
It is the bottom the Index has ever been since China’s National Bureau of Statistics began monitoring it in 2005.
What’s it imply It means China’s financial system modular refinery for sale is slowing. Meaning manufacturing is falling, growth is falling, economic demand is wavering. One of the quickest rising customers of oil is now dealing with a slow down… and which means oil consumption is slowing as properly.
Clearly a world fall in demand is driving prices lower… with falling demand OPECs manufacturing cuts will do little to stem the fall of oil.
Now before we throw OPEC entirely beneath the bus, let’s look on the US. Based on World Oil’s November journal September oil production here within the US was down as properly. Whole manufacturing fell 17%, partially because of hurricanes, but also due to falling demand.
So, let us take a look at your complete picture. Global economies are slowing, even China. OPEC’s chopping production and probably will once more. And, to prime it off, US manufacturing is falling as well. But, oil costs are nonetheless falling.
All of this tells me oil’s heading decrease brief-time period. I believe oil will fall as little as $40 or perhaps even $30 a barrel before rebounding. If you wish to revenue from this fall, take a look at a number of the ETF’s tracking the price of oil. UltraShort Oil “> Author Field Brian T Mikes has 1 articles on-line
Brian Mikes is the editor of the Dynamic Wealth Report, a free funding e-newsletter that gives funding ideas and information you cannot get from the mainstream investment press. Brian and his crew bring decades of Wall Avenue and Silicon Valley expertise to help you uncover worthwhile trading ideas you need to use in the present day.
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