There is no oil price war

Intelligent Investor

Independent Financial Research

There is no oil price war. The narrative goes like this: oil prices have fallen because OPEC, led by Saudi Arabia, refuse to cut production in response to slower demand. They refuse to cut production because they are concerned about the explosion of supply from shale producers in America. That is rubbish. Saudi Arabia is the world's lowest cost oil producer, able to extract oil at US$5-6 a barrel. The cost of extraction oil from shales ranges from U$35-$100 with an average cost of about US$70 a barrel. Let's assume Saudi Arabia (or any other low cost producer) cut 1m barrels of output. That move would have no impact on prices because high cost producers would quickly replace the lost 1m barrels of production. By cutting output, the Saudis would be gifting additional revenue to higher cost producers. The Saudi's aren't at war with anyone. They are acting rationally, just like any other low cost producer in a commodity market would act. (VIEW LINK)


2 topics

Intelligent Investor
Intelligent Investor
Independent Financial Research

Intelligent Investor is an independent financial research service with a 14-year history of beating the market. Our value investing approach empowers Australians to make more informed decisions to build their long-term wealth. We off structural...

Expertise

No areas of expertise

I would like to

Only to be used for sending genuine email enquiries to the Contributor. Livewire Markets Pty Ltd reserves its right to take any legal or other appropriate action in relation to misuse of this service.

Personal Information Collection Statement
Your personal information will be passed to the Contributor and/or its authorised service provider to assist the Contributor to contact you about your investment enquiry. They are required not to use your information for any other purpose. Our privacy policy explains how we store personal information and how you may access, correct or complain about the handling of personal information.

Comments

Sign In or Join Free to comment