oil prices

How low can it go? Goldman Sachs says $20 barrels may be possible

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There has been a LOT of movement in financial markets this summer. China, Greece, and geo-political instability across the world have all combined to send indexes swinging up and down intensely. And now, coming on the heels of a new report out of Goldman Sachs, another indicator of fundamental shifts in the market; this time in the commodities market, has come to the surface.

Earlier this week, Goldman Sachs has issued a statement basically saying that the global surplus of oil is even larger than they had previously predicted, and that the surplus could last into 2017, sending prices for crude oil as low as $20 dollars per barrel.

On first glance, this would appear to be a very good. This would send the price of a gallon of gas at the pump below $2 for the first time in years, and some analysts have speculated, sustained prices that incredibly low may actually spur an increase in American manufacturing; a sector of the economy which has famously (infamously?) been in decline for decades now.

However, when given a longer, more thoughtful glance, prices that low create a diminishing returns scenario. Prices this low would signal systemic weakness in the commodities market. One of the reasons we are seeing this weakness is because prices this low could create a systemic shift in the commodities field, permanently putting American shale oil businesses under. 1 and 2 year views on oil are all lower, with virtually no analysts predicting a return above around $60 per barrel. If oil stays at 30-40 dollars per barrel, economists like Erwat Prasad predict that could be the ideal set of supply and demand circumstances, keeping US production viable, but prices also low. The real problems of diminishing returns may begin if the value dips lower than that for a sustained period of time. This price level would put massive pressure on a number of governments all around the world which depend on their oil exports, like Saudi Arabia or Argentina. This would spur on central bank action, the ramifications of which are not yet known.

The commodities market is certainly one to keep an eye on in coming months.

Oil glut could keep prices low into 2016

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BUY! BUY! BUY! Renewable energy assets that is (or oil, I mean, why not right), as news comes out of the IEA that a world-wide glut of oil create stagnant prices for the foreseeable future. Indeed, since last November OPEC initiated a number of strategies with aim at curbing oil production in many competing, oil-producing countries. Especially those that get their oil from shale, by fracking, because the price margins on that practice are much, much narrower.

And it appears that those initiatives have been working as intended, because despite the on-set of the summer travel season and its usual bump in prices, international oil supplies are keeping those rates lower than in years passed. Basically, because the 12 countries in the OPEC syndicate can create oil at lower prices than their competitors, if they do not slow down production, other countries will be forced out of the oil business, and reliance on OPEC-produced oil will once again rise.

What would the consequences of this be? It’s hard to tell. Energy dependence is a tough spot for any sovereign nation to be in, but even if OPEC does manage to squeeze out much of its competition, how much would that drive up dependence on their products? As we stated at the beginning of this article, renewable sources of energy like wind, water, and solar are becoming more viable from an economic standpoint every day. Will those resources bridge the energy demand that OPEC seems to be stoking? What do you think? Let us know in the comments section.