I’ve been swamped so I haven’t been able to update on here as often as I would have liked these past couple weeks, which is a shame because there is tons of interesting stuff going on out there, plus end of year stuff coming, and so on. I’m on it. Don’t worry.
In the meantime, my favorite story of the past few weeks is oil prices.
Since this time late year, oil prices have been trending higher (with the usual ups and downs). Since June of this year, oil was basically stuck between $65 per barrel and $70 per barrel. That price range might be considered the “real” oil price, or the non-panicked oil price based upon an established equilibrium of supply and demand.
Then, Trump started talking about sanctions on Iran, and prices started climbing, topping out at over $76 per barrel.
This is because taking Iran’s oil supply off of the world market would decrease supply with no corresponding decrease in demand. But, what Trump shouts and what he actually does don’t always match up, and the administration basically granted sanction waivers for all of Iran’s biggest customers including China.
That means that the supply is not decreasing, and as a result there is no need for prices to be higher in anticipation of dwindling supply.
But, that isn’t the end of the story. With prices trending upward over the last year, plus a spike in the last quarter, plenty of oil producers went ahead and cranked up production. So, what was going to be a reduction in supply has actually turned into an increase in supply and prices have corrected accordingly.
That all being said, financial publications love a good headline, and nothing is a better headline than calling a BEAR MARKET, which while technically true as a reduction of over 20% in price, only exists because of artificially inflated prices in the first place.
If we were to consider the “price” of oil without the $76 peak as something closer to $67 per barrel, with $65 per barrel being a totally “normal” price recently, the the drop in oil prices to around $60 per barrel is a lot less dramatic. And, if we are looking ahead, after that un-panic, panic, shakes out of the market, prices will very likely return to around the $65 level, we have over the course of any measurement longer than weeks, a non-event in the oil markets.
Anyway, this $65 level is high enough to bring more expensive shale-type fields online in the U.S., so barring any other shocks to the system, chances are the $65 ish level that was normal before is going to be the normal after… unless a little bit too much production comes online and then we might get some $60 action for a while. Any lower than that and it starts to sideline that higher production which is why ranges outside of the 60s will be less and less common for oil prices.