Wednesday, June 24, 2015

Commodities: The Oil Paradox

(Drivebycuriosity) - The oil market shows a paradox. There is too much oil, but the price doesn´t drop,  instead the oil price climbed around 50% since January. It seems that the oil market ignores the fundamentals: Oil supply is rising faster than the demand for oil. The OPEC producers plus Russia are raising production, to gain market shares, and the US productions stays close to the recent peak. Oil demand is curbed because consumers & companies (transportation) are more energy conscious and the technological progress makes cars & other machines more energy efficient (marketwatch). As a result the global oil supply has exceeded demand globally for the past five quarters, reports Bloomberg (bloomberg). Every day more barrels of oil are produced than consumed.

Where does all the oil go?  The answer: Hedge funds and other speculators have been pumping oil into oil tankers as a bet on rising oil prices. The ongoing speculative buying and storing of oil leads to a growing quantity of idle oil, which has to come back to the market (businessinsider bloomberg). So, if there will be no sudden fundamental changes, no sharp drop of oil production nor a sharp rise of demand, this oil would add onto the already existing massive oversupply. Therefore the likelihood of an again sharply falling oil price is rising daily. It is just a matter of time that the new oil bubble will burst.

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