- New supply is developing due to the fracking boom that has increased supply of U.S. crude as well as natural gas. The collapse in price of tankers ($170,000 a day at peak to $7,000 a day now) confirms that less oil is being transported globally.
- Several producers of oil are now in a mode of having to produce. This includes Russia, Saudi Arabia (which must support a growing welfare state for its youth), Iran (where a lot of its oil is embargoed), Iraq (which needs cash) and Venezuela (which also needs cash). Indeed, it is hard to find a member of OPEC that is not motivated to produce.
- Commodity investors have had a boom in the last 15 years. That may be ending. Gold is in a bear market. Gold investors may be getting margin calls forcing them to liquidate other commodity pools (which have huge weightings to oil). This creates a vicious cycle, forcing oil and other commodities down. (In just the past two weeks, commodity indices used at The Economist are down by over 7%. That may not seem like a lot unless you have 5x margin, which you can in some of these contracts.)
Kass: Cheaper Oil's Silver Lining
Apr 17, 2013 | 06:00 AM EDT
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