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Oil Prices: What’s Behind the Drop? Simple Economics

SmartElectric

Active Member
Jul 9, 2014
2,527
2,408
Toronto,Canada
It's not only demand, supply is up, and OPEC (Saudi Arabia mostly) is not reducing production, rather they are trying to pump whatever is left of the cheap to get at oil out of the ground before demand drops off a cliff. Wait till Iran security deal is finalized, and watch the price of oil plummet.
US is producing more than ever, demand is slowing in Asia (mostly China due to a bit of a hickup in their economy).
 

jackbowers

Jack Bowers
Aug 23, 2009
275
461
Advancing technology turns scarcity into abundance, in this case by finding a way to get oil out of rock buried a mile deep. Because shale drilling productivity is off the charts due to rapid improvement, and because U.S. shale reserves are huge, it appears that U.S. producers will not only break the OPEC cartel for all time, but will go on to become the world's lowest cost producers. In a way, this is just an early version of what will play out when renewable power disrupts fossil fuels:

(1) Traditional energy stocks will get driven to zero (this has already happened with coal stocks)
(2) The pre-tax price of oil will get driven to zero (this will do more to eliminate terrorism than anything else so far)
(3) Oil gets left in the ground for all time

This might sound bad for Tesla shareholders, but it's really not. Federal and state governments will jump at the chance to tax oil, gasoline and diesel for badly needed road improvements, keeping fuel prices in the $2.50 per gallon range. And Tesla vehicles will increasingly be sold on their style and performance benefits.
 

igotzzoom

Active Member
May 26, 2013
1,219
611
Mission Viejo, CA
I would like to posit another possible scenario with the continued decline in demand for oil, and supply over-abundance. On a larger scale, the trend will continue toward more and more efficient ICE cars and EVs (due to government mandates) but we will continue to see small-volume, niche ultra-high-performance ICE models, and those owners will be overjoyed at $2/gallon gas. I read something the other day that the Hellcat may be RIP after 2019, but if gas prices stay low for that long or longer, I could see it getting a reprieve until about 2025, assuming it can meet emissions standards (which may be the issue). I really believe that EVs will take off in a major way once the median range on most models on the market is 200 miles or higher. In the unlikely scenario that that price of a gallon of gasoline goes below that of an equivalent amount of electric power, that's about the only thing that can stop the momentum. But I predict a lot more volatility in the price of oil than the price of power.
 

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