Thinking more about this recent drop in oil prices caused me to do a little more poking around the internet, and I came across the December 2014 OPEC Oil Report. I must admit I haven’t read any of these reports before, but it is full of interesting economic graphs and worldwide economic data (Click here to download the pdf).
In case you don’t want to read the whole report, below I have pulled out my favorite graphs which do a pretty good job of summarizing the whole oil situation:
Note that from the charts above, the world is awash in oil thanks largely to increased US Production. Demand for oil is expected to increase by 1+% in 2014 and in 2015, but supply is outpacing the demand. OPEC is doing the rational economic response to this; lowering production to increase prices will only sell more US Oil. The OPEC cartel is broken – after all these years there are now too many other players.
Business Insider showed this great chart about break-even prices by oilfield. This again shows it’s in OPEC’s best interest to squeeze the higher cost producers out.
So it looks like low oil prices might be around for awhile – looking at the chart above one would think the floor would be in the $50 – $60 a barrel range. Or assuming technological advances, maybe lower – throwing a huge curve ball to the worldwide fight against deflation and the assumption of constantly rising energy prices.