Why has the price of crude oil dropped so much and so fast?

Posted By on November 23, 2018

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Even as someone who watches markets and oil, the precipitous drop in price over the past month has been shocking. Most observers expected the increased inventory to cause the price per barrel to drop a bit, just as it has in the past when oil is stored in surplus, but a $20/barrel collapse in 1 month is either too much (likely if producers like OPEC & US shale companies restrain production) … or a predictor that a bigger global economic slowdown is in our future. If looking at this from a "glass half full" perspective, optimistically maybe "just a little" of both, but palatable?

Thoughts from a NYTimes article after President Trump decided to reimpose sanctions on Iran, one of the biggest producers of oil:

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Over the summer, the Saudis and other producers, who had been restraining output since 2017, opened up the taps, aiming to ease consumers’ worries and placate Mr. Trump. They may have been overly proactive. Traders have shifted their focus from Iran to other factors, like whether Mr. Trump’s trade battles with China and rising interest rates might dampen global economic growth and demand for oil.

At the same time, production in the United States has been rising faster than expected. Output has also risen in Libya, despite continuing warfare, and it has held up better than expected in another troubled country, Venezuela. Volumes of oil held in storage tanks around the world are beginning to build again, raising fears of a renewed glut, analysts say.

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Comments

Desultory - des-uhl-tawr-ee, -tohr-ee

  1. lacking in consistency, constancy, or visible order, disconnected; fitful: desultory conversation.
  2. digressing from or unconnected with the main subject; random: a desultory remark.
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