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Monday, January 12, 2015

How Low Will Oil Prices Go?

From Forbes:
It used to be that OPEC controlled the world oil market while Saudi Arabia was the designated swing producer. But with the rise of new American oil, that has changed. Henceforth, it will be American oil producers that supply the world’s marginal, high-priced barrels, and American producers that will need to have the discipline (without collusion of course!) to keep from over drilling. 
This reality hasn’t quite been accepted by oil companies still waiting for OPEC to take action and cut its own production. Which is why oil prices (and stocks) likely have another big leg down from here.

How far? At least $40. Maybe even $20. 
But don’t take my word for it. 
Two weeks ago, while most of us were getting merry and happy, the Middle East Economic Survey landed an exclusive interview with Saudi oil minister Ali Naimi. (I encourage everyone with an interest in oil markets to read the full interview for free here.) 
In the interview, Naimi said in no uncertain terms that neither the Kingdom nor OPEC has any intention to cut production. He said that Saudi production costs are no more than $5 per barrel, and that marginal costs of development are “at most” $10 per barrel.
Read the entire article by clicking right here.

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