Oil Prices Breach The $50 Level, Now What???
Three weeks ago I wrote about oil,
Bottom Is In For Oil...For The Time Being
I think the bottom is in on oil for the time being. Last week, the buyers refused to see oil close below $50 level. Russian President Vladimir Putin said he and Saudi Crown Prince Mohammed Bin Salman agreed to extend output cuts on the sidelines of the weekend G-20 summit. Another big boost for crude came after Sunday’s announcement by Alberta Premier Rachel Notley, who said she has ordered oil companies in the Canadian province to cut production by nearly 9% next year due to a glut in Canadian oil
But then the US markets sold off in December...on course for the worst December since the 1930s amid a widespread sell-off of stocks across Europe and Asia as well. Just look at that monthly candle and the month isn't even over yet.
Crude oil prices dropped nearly 25% in November alone, the biggest monthly loss in a decade due to record production in the United States, Russia and Saudi Arabia. In addition, the combination of a stronger U.S. dollar and concerns over a slowing global economy have caused prices to fall below $50, which was my line in the sand. So what's next for oil, lets go to the charts to find out?
On the monthly chart, oil is about to enter the monthly demand at $42.
Many experts have said $50 oil was the break even point for the shale producers, but that is an average price point. In certain areas of the Permian, break even ranges from between $30 and $50 per barrel, while other areas need as much as $65. And when you consider wells outside of the Permian area, break even could be actually higher.
Over the next several months, we will witness supply and demand in full effect. If oil prices stay depressed, wells will have to shutdown. This will lead to lower production levels, until demand catches up. Once demand catches up, the price for oil will rise. Once the price for oil rises, more wells will operate again. It's a constant cat and mouse game.
But if the global economy decides to move from slowing to tanking, all bets are off and oil prices will breach the $40 level. 2019 should be another interesting year for oil.
This post is my personal opinion. I’m not a financial advisor, this isn't financial advise. Do your own research before making investment decisions.
This is good for manufacturing but terrible for the overall economy that relies on the price of oil to sustain. Venezuela is in shambles because it completely structured its economy around the export of oil and since it is so low they aren't making any money at all!
I am Venezuelan, and I really hope that the price remains low, so that it allows us to develop a truly productive industry and not dependent on oil.
What a novel idea!
Also good for consumers like you and I, a tax cut at the gas pump. Yeah saw a documentary last week on Venezuela, it's so terrible, I truly feel sorry for the people of that country.
Seems like there is always turmoil (no pun intended) in the oil markets past several years.
Yes, the shale producers have been the X factor and now heavily influence the supply and demand equation.
I've notice in almost every oil producing region, the government or a governing body can determine how much oil is produced. In the US, it's the free market that decides. I would call that the definition of an X factor. No longer can the big country producers dictate the price of oil as much as they try, the US oil companies will drill baby drill when the price is above their breakeven point.
Very insightful. Yeah, 2019 is shaping up to be a watershed year for the global economy on just about every front. We've got so many bubbles reaching their breaking points, and so many nations who feel they've reached the furthest limits of QE at the same time. (Shame on them for doing QE through all these bubble inflations!) Oil is a good metric to watch.
Great point, we have bubbles due to all the QE in the world, but when they start tightening like the US, it's going to get ugly...already started to get ugly in the US.
I have a good idea that both gold and cryptos will be receiving a good deal of that bubble money that gets pulled out of the market.
Supply changes by OPEC will have little effect if demand slows unless governments start tk add to stockpiles while prices are low. Shale is interesting as they have employed many over the recent bull run.
Posted using Partiko iOS
So true, I think the OPEC has lost their influence power over the years due to the shale production. But with prices depressed, there will be shale producers going out of business because of the debt they owe.