Oil – things are different now.

I have written about oil a few times, the reason is the international impact on the cost of supply by oil producers – to the price.

A further collapse in oil prices will have a huge negative effect on all economies. It will happen in the next 6 months and the knock on effect will not be pretty.


World liquids production surplus of deficit (12-month moving average) and Brent oil price. Source: EIA and Labyrinth Consulting Services, Inc.
(Click image to enlarge)

High oil prices preceding the 2014-2015 price collapse began because of supply interruptions resulting from the Arab Spring.

Brent price reached a maximum of $129 per barrel in April 2011 at the height of the Libyan Civil War. These events corresponded with a period of U.S. currency devaluation following the 2008 Financial Collapse and an extraordinarily weak U.S. dollar (Figures 13 and 15). The additive effects of a supply deficit, economic uncertainty and geopolitical risk resulted in high oil prices.

Case histories neither predict the present or the future but offer guidelines. These two case histories simply suggest is that the present period of low oil prices is more similar to that of the 1980s and 1990s than to that of the 2008-2009 period. That similarity means that the current phenomenon is likely to be a relatively long-term event.

The most likely case is that oil prices will decrease in the second half of 2015 and that financial distress to all oil producers will increase. The hope and expectation that the worst is over will fade as the new reality of prolonged low oil prices is reluctantly accepted.

We have had a year of lower oil prices. Based on available data, I see no end in sight yet. The market must balance before things get better and prices improve. That can only happen if production falls and demand increases. That will take time.

We have crossed a boundary and things are different now.


Art Berman is an energy specialist. Full report very interesting read.


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