TWO factors determine the price of a barrel of oil: the fundamental laws of supply and demand, and naked fear"...The Economist
Well, the question is where has that naked fear gone this year. There is huge unrest in Middle East and just look at the Brent Crude Oil Chart. It's in free fall mode as if the violence in Iraq, Ukraine and Palestine does not count.
Most of the earlier price spikes in Oil have happened more because of fear than supply demand equation right from Arab oil embargo in 1972, the Iranian revolution in 1978 and Saddam Hussein's invasion of Kuwait in 1990. Also, the Arab spring unrest in 2011 also resulted in decent spike.
1. US is now producing Oil like crazy making supply worries of Middle East irrelevant
The U.S. will remain the world’s biggest oil producer this year after overtaking Saudi Arabia and Russia as extraction of energy from shale rock spurs the nation’s economic recovery...Bank of America
According to U.S. Energy Information Administration, U.S. oil production has jumped from 5.0 million barrels per day in 2008 to 7.4 million in 2013. It is expected to average 8.5 million in 2014 and rise to 9.3 million in 2015, according to the EIA, the analytical arm of the Department of Energy. US is making up for more than any potential supply shock that may happen in Middle East, and that is driving down the price of Crude Oil.
2. EIA has been dramatically upping estimates on the volume of technically recoverable shale oil.
There is plenty of Oil in the world right now. The world is not running out of Oil and hence there is nothing to worry.
There is nothing to fear on Crude Oil front. Technically, Crude Oil has broken 200 week ma and is slated to slide down to $100 and then $95 over next few weeks and months. This is extremely bullish news for India.
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