Thursday, November 27, 2014

The cats fight for the larger share, monkeys make merry

OPEC has decided to maintain its pumping rate in response to the cut-calls to stem the slide in oil prices. OPEC are a bunch of countries having access to the easy oil. In recent years we saw the rise of tight (Shale) oil after the peak oil lead to a steep hike in oil prices.

OPEC's latest move to ignore the fall in oil prices is viewed as a price war between the conservative and the new oil producers. The new oil is vulnerable due to a very high production cost as compared to the conservative oil. Hence, as the prices fall, the shrinking profits margins would soon put its producers in dock and the benefit will go to the OPEC. Therefore, expecting production cuts from OPEC could be ruled out till they really see shale production hampered. For now OPEC has blissfully passed on the handle to control prices to the new recruits of the oil production market.  

If the 'cap oil' decides to be resilient and test the market price levels at current production rate, experts feel the prices could touch as low as $50-60 pb. However, low profitability may choke them before reaching those levels. It seems, only a big leap in world economy or a forced blockage (an act of God) in OPEC's flow may buoy the fresher in future. Also, it means, Iran will remain untouchable or an outcast for a longer period.

For the time being, oil importing countries are enjoying the low prices. But this turn in events would push their domestic consumption for goods and oil more than their exports.  


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