{"id":4661,"date":"2014-10-03T13:51:36","date_gmt":"2014-10-03T12:51:36","guid":{"rendered":"http:\/\/www.theoillamp.co.uk\/?p=4661"},"modified":"2014-10-03T13:51:59","modified_gmt":"2014-10-03T12:51:59","slug":"one-thing-learnt-week-oil-prices-low","status":"publish","type":"post","link":"https:\/\/www.theoillamp.co.uk\/?p=4661","title":{"rendered":"One thing we have learnt this week- why are oil prices so low?"},"content":{"rendered":"

Why are oil prices so low and why are they falling?\u00a0 This is particularly surprising with so much war in the middle east and tension in the Ukraine.\u00a0 There is almost no oil coming out of Libya<\/a> due to its civil war.\u00a0 There has been huge disruption to the flow of oil from the northern Sunni and Kurdish regions of Iraq, the is continuing trouble in Nigeria, Syrian oil is not leaving the country (if it is produced at all), there is a shaky truce in the Ukraine and there was a recent war between Israel and the Palestinians.\u00a0 Any one of these events should send the oil price sky high.\u00a0 They haven’t, after a long period when Brent crude was stable at around $108-110\/barrel its now in the low 90’s.\u00a0 An analyst on the radio suggested last week that oil prices might fall as far as $85. Natural gas prices are also falling.<\/p>\n

The first thing to say is this gas and oil prices are still high by historical standards and when Andy and I wrote in our book<\/a> the days of cheap energy are over we were not exaggerating.\u00a0 The graph below shows historical adjusted oil prices and the current price is still high by any standard.<\/p>\n

\"oil<\/a>The reason for this fall in oil prices could be for two reasons, the first is unconventional shale oil production in the US, the second is increased OPEC production.\u00a0 The first reason is logically not correct.\u00a0 Oil production in the US has increased dramatically since 2008 (BP Statistical Review of World Energy 2014) and this has had no discernible effect on the oil price. \u00a0 At least it has not lowered it, the dramatic fall in energy prices in 2008\/9 was due to the global slump.\u00a0 Oil prices recovered when Quantitative Easing (QE) was used by the US and UK governments and the global economy recovered somewhat and as I wrote above have been remarkably stable until recently (despite an economic slowdown in China and the EU).\u00a0 QE is still being used in the US.\u00a0 The reason for decreased oil prices is that Saudi Arabia is pumping more oil.\u00a0 The questions are why and for how long?\u00a0 Saudi Arabia is using a lot more oil itself but needs much higher prices than the current oil price since its cash reserves have shrunk.\u00a0 The reason why Saudi Arabia periodically pumps more oil to lower the price could be they are worried that rocketing prices will lead people to look for alternatives.<\/p>\n

My suspicion is that they have both electric cars and oil fracking in their sights.\u00a0\u00a0 With an expected huge fall in battery prices<\/a> over the next few years high oil prices would make electric cars look very viable.\u00a0 Its also interesting to note that fracking for oil relies on high oil prices, it needs oil prices somewhere in the $80-90 range to be viable.\u00a0 The question is how low and for how long will the Saudis allow the oil price to go and by doing this how much are they depleting their reserves?\u00a0 Saudi Arabia will not be able to do this for ever.<\/p>\n

Neil<\/p>\n","protected":false},"excerpt":{"rendered":"

Why are oil prices so low and why are they falling?\u00a0 This is particularly surprising with so much war in the middle east and tension in the Ukraine.\u00a0 There is almost no oil coming out of Libya due to its … Continue reading →<\/span><\/a><\/p>\n","protected":false},"author":1,"featured_media":0,"comment_status":"open","ping_status":"open","sticky":false,"template":"","format":"standard","meta":{"_exactmetrics_skip_tracking":false,"_exactmetrics_sitenote_active":false,"_exactmetrics_sitenote_note":"","_exactmetrics_sitenote_category":0,"footnotes":""},"categories":[29,12,17],"tags":[34],"class_list":["post-4661","post","type-post","status-publish","format-standard","hentry","category-energy-costs","category-gas","category-one-thing-we-have-learnt-this-week","tag-oil-prices"],"yoast_head":"\nWhy are oil prices so low and why are they falling?<\/title>\n<meta name=\"description\" content=\"Why are oil prices so low and why are they falling? 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