Crude Oil Is More Than Motor Fuel

Crude Oil Is More Than Motor Fuel

$OIL, $USO, $UNG, $BP, $RDS-A, $HAL

Crude Oil is much more than motor fuel. It is its $3.4-T + market. a leading economic indicator, it is an asset, a weapon and some have called it a curse.

The Crude Oil market says as much about global economics and politics as it does about supply and demand, analysts say.

Now after 4 yrs when the highest average Crude Oil prices in history (about 147 bbl) it began to fall in mid-2014. It had risen to 107.73 bbl in June. That as Americans and Europeans drove fewer miles in more efficient cars, curbing consumption of gasoline aka motor fuel.

Supply expanded as the higher prices made expensive deepwater drilling and fracking pay off.

The in the Summer of Y 2014, as Chinese imports slowed, Europe teetered on the brink of recession, the stronger US economy made Dollar priced Crude Oil more expensive.

So, instead of turning off the pumps of the the glut, Saudi Arabia and its Middle East neighbors engaged in a price war to defend their market share. And the price dove to  42.03 in March, the lowest since Y 2009.

Then came a Fibo bounce above 50 bbl. The price collapse had forced high-cost drillers in the US to mothball rigs, and international Oil giants like BP (NYSE:BP), Shell (NYSE:RDS-A),and Halliburton (NYSE:HAL) cut thousands of workers and over $100-B in capital spending.

The actions led OPEC to declare its strategy a success at its recent June meeting and to maintain current production runs, the supply glut shows little sign of slowing.

As the world industrializes and consumes more energy, each new barrel of Crude Oil costs more because the cheapest and easiest has already been pumped. This observation gave rise to a theory called “Peak Oil,” which held that world production will eventually max out and decline as Oil fields deplete.

Skeptics of this supply notion point to the technological innovations that let US producers extract Crude Oil and Nat Gas from previously impermeable shale, unlocking vast new resources at greater expense. the issue is not quantity but cost.

The other variable is demand.

No one knows Crude Oil’s future as consumers grow more efficient and switch to alternative fuels such as Nat Gas and renewable alternative energy.

Crude Oil supplied 31% of the world’s energy in Y 2012, down from 46% in Y 1973. There may come a day when Crude Oil becomes cheap because of demand damage.

The advocates of divestment warn of a financial crisis caused by a bursting “Carbon Bubble” of inflated energy-company valuations after fossil-fuel prices rise to account for the costs of contributing to global warming.

Time will tell, meanwhile Crude Oil is cheap and the most efficient energy source in the world.

Stay tuned…

HeffX-LTN

Paul Ebeling

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