OPEC

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Has OPEC lost its power by being greedy? Did they leave prices so inflated that non-oPEC countries, like the US and others, gained enough market share for them to lose some of its power?

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The US figured out how to economically produce oil from shale fields in 2008. It turned into the new gold rush, and companies took on massive debt to get into the game. 2014 rolls around, and QE ends and talks of interest rates start up. Rest of the world goes into recession/poor economic times, and the previous events make oil more expensive for them since it's priced in USD. These two events lead to them cutting back on their oil demand. The US increases their oil production by 60-80% in 5 years(considering current US daily production numbers of 9.4 million barrels produced a day compared to 5.5 million in 2010). That oil either replaces OPEC imports or goes in storage, starting the supply problem. The supply and demand problems lower the price, and the companies that took on massive debt to get into shale need to maintain cashflow to service the debt, so they pump more, not less, even though it isn't profitable in the short or long term.

OPEC side: during the last oil bust in the 80s and 90s, OPEC tried to end the bust by cutting demand. Those who actually did (Saudis particularly) saw other OPEC members increase production and take the market share of the cutters. So OPEC doesn't trust each other to cut anymore. Also add in that Saddam Hussein invaded Kuwait over oil disputes and had their oil fields burned as his troops retreated, and you can see that OPEC is less a pack of wolves and more of a loose confederation. Most OPEC countries have governments the people only tolerate because the oil money is pumped into their society, so most OPEC countries also need to maintain cashflow like the over-leveraged US companies. So no one's cutting on that side, and Saudi Arabia had set up a rainy day fund when times were good to entirely cover their government's expenditures for four years. Most OPEC countries didn't think like that.

So no one's cutting, and the developing economies aren't in a position to increase demand. Welcome to the new oil bust. We may be here a while.

And if anyone really thinks that the oil bust is all OPEC's fault to tie US oil to the train tracks and deviously twirl their mustaches, then please tell me why they didn't buy all the oil puts/short oil that they could afford to before doing so. Because if they did, they wouldn't be worrying at all about the price of oil being down.

/thread.

So do y'all still think oil is a good long term hold? 15-20 years

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Omada

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Like Omada said below, it is several events all at the same time causing this downturn in oil.

Oil was never "worth" 130 a barrel. Lots of speculators had as much to do with that as OPEC did. But... when sale prices are high like that, basic economics states that new market entrants will appear. US shale production went full tilt partly because of high prices.

Now, share is still more expensive than the mideast oil fields, but, as shale tech improves, costs go down.

As far as OPEC, they are nothing more than a band of thieves, and like any good band of thieves, they don't trust each other one bit.

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OPEC
I thought I'd post this here, as it seems to be a turn towards more negative than I have seen.

Supply glut thru 2017, so screw a turnaround in 2016!

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This is actually what I have been waiting for, what I believe will fix the bust. The over-leveraged companies are the ones pumping like mad to service their debt and only hurting the market and themselves in the long run. The oversupply problem is fixed a bit every time one of them declares bankruptcy and stops production.

The upside is that it could send oil back up into the $50s or maybe the low $60s, but we'll also need to burn through the storage we've built up. And no one needs to replace them.

The downside will be from those companies' bonds and the banks that made loans to them. It could potentially start another recession.

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. It could potentially start another recession.

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Any articles I could read on this?

I know corporate bonds are in a bad market.

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This low oil price is absolutely needed

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It will slap people back in line, then bounce back with a vengeance with the lack of investment in projects for multiple years.

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This low oil price is absolutely needed, the market is correcting it self. We will see tons of bankruptcies this year IMO, banks should start cutting revolving credit and rising interest rates should cut back some of the money floating around.

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I think banks tried to kick the can down the road last fall. This last leg down into the 30's or possibly 20's soon should force them to capitulate and let some of the overextended producers go through bankruptcy. It's going to hurt either way but I agree in that when people start exiting the market prices could improve.