> OPEC will stand by its decision not to cut crude output even if
> oil prices fall as low as $40 a barrel and will wait at least
> three months before considering an emergency meeting, the United
> Arab Emirates’ energy minister said.
>
http://www.bloomberg.com/news/2014-12-1 ... to-40.html
Higgenbotham wrote:
> John, I think you might say this is what deflation looks like. It
> is an attitude.
This morning I was reading an analysis of the US fracking industry
that may shed some light on what's going on.
Even though the price of oil is plummeting, US fracking production is
going to continue increasing, though perhaps slightly less rapidly than
has been previously predicted.
The reason that there's any decrease at all is because the fall in prices
make it uneconomic to invest in new wells. These wells wouldn't come online
until next year anyway, so that explains why there's any reduction at all
in the forecasts for future production.
But the existing wells are backed by hedge funds and junk bonds that are
now in distress because of the fall in prices. As a result, production
in the existing wells will actually be increased as much as physically
possible, to generate revenue at low oil prices to make margin calls for
these junk bonds.
It occurs to me that the Saudis may be in a similar situation. They may
also have shaky investments backing up their oil wells, and so they too
would have to keep production as high as possible to pay off their own
margin calls.
The same thing happened in 2008-2009:
From US Energy Information Administration (EIA)
WTI = West Texas Intermediate
http://investmentwatchblog.com/what-the ... tchBlog%29
http://www.eia.gov/todayinenergy/detail.cfm?id=19171