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Tuesday, December 2, 2014

Oil Prices Reach Five Year Low: Implications

The American Oil Boom Won't Last Long At $65.00 A Barrel

Alan: If the production of U.S. oil has a "$65.00 floor," it is likely that solar energy (whose price will  continue to decline forever) will put an end to newer oil extraction technologies when the cost of solar energy per BTU dips below the "BTU cost" of oil.

The price for Brent crude had recovered by Tuesday. Prices have fallen more than a quarter this year, and they reached their lowest level since October 2009 on Monday before recovering to near $73 a barrel. Reuters.

Lower oil prices change everything. Forecasts for cheap oil next year are already having profound effects:
-- Stock prices for major oil producers have also fallen.

-- The slide in prices weakens Russia and Iran, exacerbating the effects of Western sanctions.

-- Fracking will continue in the United States, but at a slower pace.

-- Federal Reserve officials say the slide in oil prices will help U.S. consumers, who are saving $630 million a day on gasoline in total.

Steve Mufson in The Washington Post.


What's driving the decline in prices? There are a few reasons.

-- First, OPEC is now deeply divided over how much oil to produce. The member states voted Thursday not to stabilize prices by cutting production.

-- And production in the United States is booming.

-- Internationally, a weak global economy is burning less fuel.

Chris Mooney in The Washington Post.

EL-ERIAN: The decline in prices will help the poor and working class, but carries risks. For one, investment in new, clean technologies will be hampered by low energy prices. Bloomberg.

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