Indian Equity Bulls Should't Anticipate Further Crude Price Decline

By siliconindia | Tuesday, 25 November 2014, 11:26 Hrs

The OPEC, however, might delay their plans to curb production. The group faces an additional dilemma the U.S shale oil revolution. By pushing prices higher from current levels, the OPEC would encourage oil investments, including U.S shale production. As we know, the United States has flooded markets with new crude (adding roughly one million barrels a day each year to global supply), contributing to lower prices. But its shale production requires relatively high oil prices to make money. According to Goldman Sachs, with crude at $75/barrel, 19 U.S shale oil regions will no longer be profitable. So the argument can be made that if weaker prices force some producers particularly U.S. shale producersÂto abandon their most expensive wells, then the market could eventually work in OPEC's favor.

Currency Corner is of the belief that we are in the midst of the end of the commodity super-cycle. It is too early for OPEC to try and fight off the effects of U.S shale oil production which is a trend here to stay. There was a famous cover of The Economist magazine in the late 1990s which said that ''what's in the ground can only go down''. While, this column agrees that the long term trend in crude and energy prices is bearish, over the short term one can bet that OPEC will put a bottom to oil prices close to current levels.

Source: IANS