Oil is a commodity, but the cost involved in bringing a barrel of oil to market varies significantly. Some of the worst actors on the world stage are oil producers -- Iran, Russia, Venezuela. These countries are getting crushed:
The Opec oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over the coming months as market forces shake out the weakest producers, Bank of America has warned.
Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a “multi-year” glut and a much cheaper source of gas for Europe.
Francisco Blanch, the bank’s commodity chief, said Opec is “effectively dissolved” after it failed to stabilize prices at its last meeting. “The consequences are profound and long-lasting,“ he said.
The free market will now set the global cost of oil, leading to a new era of wild price swings and disorderly trading that benefits only the Mid-East petro-states with deepest pockets such as Saudi Arabia. If so, the weaker peripheral members such as Venezuela and Nigeria are being thrown to the wolves.The BofA analysts may be wrong in the particulars, but I suspect the the general trend is true. I can't prove it, but I suspect the reason the Saudis are willing to make less per barrel is that the impact of lower prices on them is far less than it is on Iran. If Iran starts to become impoverished, things could get dangerous.
The bank said in its year-end report that at least 15pc of US shale producers are losing money at current prices, and more than half will be under water if US crude falls below $55. The high-cost producers in the Permian basin will be the first to “feel the pain” and may soon have to cut back on production.
Enjoy it all while it lasts.