Sunday, August 23, 2015

Welcome to Oil Falls



Fareed Zacharia’s Washington Post article put the rise of ISIS and the Iran deal into the greater context of oil prices falling and a long term glut. Zarcharia argues that Saudi Arabia is the primary cause because it is willing to keep pumping oil in spite of declining profits to hard Shale, Tight Oil, Russia and especially Iran but the long term willingness of Saudi Arabia to continue is harder to read than stated by Fareed. There is a new King and more importantly a frequently less experienced court making economic and military decisions. However, North America’s available oil reserves are up, current production will not be affected by the price of oil.  American Interest makes a similar statement suggesting both US producers and OPEC are “holding steady at remarkably high levels” of production. Bloomberg reported, “U.S. shale oil production will eventually respond to low prices, with access to finance dwindling as “capital markets are getting nervy,” Citigroup said”” meaning we may not have seen the bottom price of oil but the bottom is not likely the resting place for oil prices. The lesson North America should get out of this is that over production does protect the price of oil and that may be worth the high investment cost. No one should assume that Russia, Iran and Venezuela will not eventually rebound just on the price of oil alone, there certainly could.  But there is a short term opportunity, meaning for four or five years domestically sponsored political change in these counties is possible as well serious instability. Wherever the chips fall by the end of that time will result either in world problems that need to be dealt with or a more stable international scene.  

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