The crude melt

The crude oil price has fallen to almost 1/3rd since june this year and analysts expects it to fall more, although everything seems good for an net importer country like india, where inflation is easing, costs are coming down and everything seems to be going good.

 

But if we take a simple fundamental which says if the economy rises, the crude oil demand would rise and so the crude oil prices, but the current equiry markets and economic factor says a different story at all, where the markets ( not pretty sure of real economy) is rising but on the contrary the crude oil price is falling, and to top it the reason for rising equity markets is attributed to the falling of crude oil prices, so what would you say to this

 

If we dig a bit deeper in the whole crude oil story, there are few facts which will unfold the current situation viz. the rise in crude oil price back in 2009 or so to sub 140$ was not mainly due to the demand but more of the OPEC cartel decisions and their power to manage the crude price, which in turn gave birth to the low cost SHALE GAS which is abundant in the US territory ( the biggest consumer of energy products) and since 2009 US has hugely and on war footing worked on exploring SHALE GAS and other non conventional energy products, which has now made the US Crude oil demand to a 3 year low and in turn the Gulf or OPEC players are forced to sell the inventory in losses due a danger of loss on past inventory.

 

Also the current OPEC meet went away with keeping the same oil production levels, as against the minority belief of cut in production, with a simple view that if the Crude oil prices rise again the SHALE GAS exploration would be more economically viable for the producers and SAUDI( the largest oil producer) was of the view that a fall in production would adversely affect the crude prices

 

So lets analyse it this way, the world is going towards non conventional energy sources and mainly renewable ones, the table has turned upside down for crude oil since 1970 and this decade will mark a significant change in the way Energy products are produced, traded in world, so stay tuned so see some more cut in crude, which will definately increase the pollution but will decrease the inflation although

 

Happy Investing !

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