The collapse in oil prices from $110 a barrel down to $30 a barrel took many people by surprise, has persisted long enough to destabilize governments, and is likely to continue. As with most wars, the people that start them think they’ll be over soon. The oil price war was expected to only last about four months. Saudi Arabia and others dropped their prices to counter increased production from fracking and other new suppliers. The frackers and new suppliers were more resilient, and then more desperate. Companies and governments based their finances on high oil prices that were expected to go higher ($1,000 peak oil, etc.) When prices went down, producers had to produce more to pay their expenses. The increased supply drove down prices, requiring producers to produce more. Currently, supply is being produced faster than demand can consume it, especially since China’s economy is slowing and slowing others. The supply demand imbalance is also happening as renewables and urbanization become more prominent. The situation isn’t expected to change until some are forced out of the business, either by choice or bankruptcy. Bankruptcies are already increasing, as are layoffs. Countries are also destabilizing, such a Venezuela with 400% inflation and Nigeria’s stock market collapse. The most likely near-term change will come from Iran as it begins to pump oil against, post-sanctions; but that will increase supply, exacerbating the situation.
(Click on the graph for the link.)
Pretending Not To Panic 