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Why oil prices are dropping this summer
The Hill ^ | 06/08/19 | Ellen R. Wald

Posted on 06/08/2019 6:49:48 AM PDT by yesthatjallen

The financial world is watching for further contentiousness between United States and Chinese negotiators, as oil traders fear a potential global economic slowdown. Meanwhile, the Organization of Petroleum Exporting Countries (OPEC) is trying to push oil prices higher.

There was a time when OPEC would have been able to do that. However, the oil markets are facing several supply disruptions and yet the price is dropping.

As OPEC prepares to meet at the end of this month and hopes to prop up the price of oil, we can thank U.S. oil production for the lower prices. Because of the 12.4 million barrels per day the United States is producing — more than any other country in the world right now — traders are actually pushing down the price rather than driving it up to four-year highs.

A recent drop in oil prices has left OPEC confused. As the Saudi oil minister Khalid al-Falih said last week, the price volatility seen in oil recently is “unwarranted.” In fact, if the market followed only the news about global oil supply, the price of oil would be rising over the last few weeks, not dropping precipitously as it has.

Just in the past month we have seen Iranian oil exports fall to near zero and Venezuelan production plunge below 800,000 barrels per day. At the same time, according to officials, Libyan production could “collapse at any moment,” Kazakhstan’s largest oil field was mostly offline for maintenance and Russia has been suffering from an oil contamination problem. Production from OPEC member nations actually dropped to a four-year low in April. This news would typically signal the market to raise oil prices.

But that’s not happening, in large part because U.S. production has fundamentally changed market perception. Oil traders and the oil market have ignored any news that would send prices higher and instead responded only to fears of an economic downturn and potential resulting decrease in oil demand. WTI, the U.S. oil benchmark, fell over 20 percent from April 23 to June 5. Markets have decided that there is enough oil supply, regardless of what happens in Iran, Venezuela, Libya and Russia. This is largely because of record production from the United States.

OPEC and its partner countries, such as Russia and Kazakhstan, want higher prices. OPEC+, as the combined group is called, will be meeting within the month to discuss their strategy for the next six months. They may continue or increase production quotas from the past two and a half years, in hopes of raising the price again.

If U.S. production was not so robust, OPEC+ would be able to manipulate the market to prop up the price, perhaps even to triple digits. However, the U.S. supply significantly complicates the matter for OPEC+ and has left the market confident in supply numbers. Even if oil production from OPEC+ continues to fall, the perception remains strong that global supply is plentiful, thanks to U.S. oil.

Typically, as we approach an OPEC meeting with low oil prices, markets start to anticipate and prepare for a jump in oil prices based on OPEC’s decision. In fact, there is already talk that OPEC might try to cut production to prop up oil prices. But we aren’t seeing the price of oil rise in response to this news like we usually would. It is possible that oil prices might temporarily spike in response to a decision by OPEC at the end of the month, but we should not worry about a large jump and long-term higher repositioning of oil prices.

Today, OPEC is incapable of altering the supply of oil enough to shock prices significantly higher. The events of the last two months have demonstrated that, despite OPEC’s production decreases, U.S. oil production is simply too strong for the market to worry much about OPEC’s decisions.

This spring and early summer, we are seeing oil prices drop because strong U.S. production has given oil traders an excuse to focus on issues like a trade war with China or a potential global economic recession instead of OPEC and Russia.


TOPICS: News/Current Events
KEYWORDS: crude; energy; oil; opec; traders; wti
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1 posted on 06/08/2019 6:49:48 AM PDT by yesthatjallen
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To: yesthatjallen

The Dollar has been rising steadily for the last year.


2 posted on 06/08/2019 6:58:55 AM PDT by JPJones (More Tariffs, less income tax.)
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To: yesthatjallen

But Obama said oil prices cannot be fixed by drilling. That Obama guy is really smart they say.


3 posted on 06/08/2019 7:01:38 AM PDT by DariusBane (Liberty and Risk. Flip sides of the same coin. So how much risk will YOU accept? Vive Deo et Vives)
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To: DariusBane

The oil experts were not so smart.


4 posted on 06/08/2019 7:05:33 AM PDT by Destroyer Sailor (Revenge is a dish best served cold.)
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To: yesthatjallen

I never thought I’d see the US producing 12.4 million barrels per day, even though I knew we had the capability.

The Democrats are planning to crush the oil industry and our output if they get control of both houses and the Presidency. And they will if they do.

I believe that they quite literally hate prosperity.


5 posted on 06/08/2019 7:06:17 AM PDT by ChildOfThe60s (If you can remember the 60s........you weren't really there)
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To: yesthatjallen

“The events of the last two months have demonstrated that, despite OPEC’s production decreases, U.S. oil production is simply too strong for the market to worry much about OPEC’s decisions. “

Growing up in a very cold house in the 70’s:

Never thought I’d see the day.

Thank Jesus and Fracking.


6 posted on 06/08/2019 7:07:27 AM PDT by JPJones (More Tariffs, less income tax.)
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To: DariusBane

I don’t believe in my fairly long life (so far) I have ever seen a person who is more “all hat and no cowboy” than is Obama.

Watching him speak without a teleprompter is actually embarrassing.


7 posted on 06/08/2019 7:10:34 AM PDT by billyboy15
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To: Whenifhow; null and void; aragorn; EnigmaticAnomaly; kalee; Kale; 2ndDivisionVet; azishot; ...

p


8 posted on 06/08/2019 7:12:04 AM PDT by bitt (I donate all my chips to erecting electric bleachers in Gitmo!)
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To: yesthatjallen

The left wants gas prices to go up. During the Bush years, they lay in wait at gas stations, ready to snap a picture of the new gas price signs with a 4 instead of a 3.

Gas prices didn’t go up much this spring, and Trump is president, so the media is completely hiding that fact from us.


9 posted on 06/08/2019 7:13:45 AM PDT by I want the USA back (Islam, not a religion, a totalitarian political ideology aiming for world domination. -Wilders)
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To: ChildOfThe60s

We can do better than that if we can get more refineries and pipe lines. Here in the Permian Basin we’re producing more than we can ship and the big tank farms are about full.


10 posted on 06/08/2019 7:14:46 AM PDT by Dusty Road (")
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To: ChildOfThe60s
I believe that they quite literally hate prosperity.

They hate prosperity because it decreases dependence on government.
11 posted on 06/08/2019 7:15:50 AM PDT by slumber1 (Islam delenda est)
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To: ChildOfThe60s

The democrats are Pelagians who believe in the elitism of choice. And those with the most money have the most choice. The pelagian heresy contends that we can save ourselves because there is no such thing as original sin. This fallacy has created a hierarchical society where the working man or woman is devalued.


12 posted on 06/08/2019 7:16:07 AM PDT by RichardMoore (Without the protection of life all other right are void, dump TV and follow a plant based diet)
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To: ChildOfThe60s
I believe that they quite literally hate prosperity.

They don't hate proseperity per se. They hate YOU. They want to impoverish you, imprison you, and kill you. They want to reserve the prosperity for themselves.

It's like leftists and guns. They LOVE guns in the hands of government goons that they control. Guns in YOUR hands? That, they hate.

13 posted on 06/08/2019 7:19:31 AM PDT by NorthMountain (... the right of the peopIe to keep and bear arms shall not be infringed)
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To: yesthatjallen

Just think how high oil prices would be right now without fracking and the subsequent boom in US production. Not only that, but all the jobs it has generated plus how much more secure we are. We need to build more pipelines and refineries, bring ANWR into production and drive our daily output substantially higher.

Then we can all but abandon the Middle East. Let the Yurps and Chinese deal with the headaches. It will be their problem - not ours. I think we’re just a few years away from that so long as the Democrats are not allowed to derail our growth in oil and gas output.


14 posted on 06/08/2019 7:22:08 AM PDT by FLT-bird
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To: yesthatjallen

Why have oil prices fallen? Drill Baby Drill!! Any questions; ask someone else, I’m going for a drive.


15 posted on 06/08/2019 7:22:15 AM PDT by jmaroneps37 (Conservatism is truth. Liberalism is lies.)
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To: yesthatjallen

But Obammy told us the days of cheap gas are behind us!


16 posted on 06/08/2019 7:25:20 AM PDT by Gamecock (In church today, we so often find we meet only the same old world, not Christ and His Kingdom. AS)
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To: JPJones

I haven’t been paying attention to that. I am going to Germany in July, just checked the exchange rate and WOW!


17 posted on 06/08/2019 7:28:38 AM PDT by Gamecock (In church today, we so often find we meet only the same old world, not Christ and His Kingdom. AS)
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To: Destroyer Sailor

https://www.mediamatters.org/research/2012/04/12/myths-and-facts-about-oil-and-gasoline/184527


18 posted on 06/08/2019 7:29:01 AM PDT by DariusBane (Liberty and Risk. Flip sides of the same coin. So how much risk will YOU accept? Vive Deo et Vives)
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To: yesthatjallen

And, Saudi Arabia and the UAE have promised to pick up the production slack resulting from the sanctions on Iranian oil. Part of the rescinding of waivers on sanctions was the promise of supply by Saudi Arabia and the UAE.

The big three now hold significant cards in determining production and price.


19 posted on 06/08/2019 7:33:57 AM PDT by bert ( (KE. NP. N.C. +12)There were Democrat espionage operations on Republican candidates)
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To: DariusBane

He was, and is, a Socialist. Nothing more.


20 posted on 06/08/2019 7:39:34 AM PDT by Shady (One More Time: CO2 is PLANT FOOD! Without it we die. Any questions?)
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