After staying so high for so long it now looks like oil prices are falling and the bottom may be at least on a temporary basis as low as $50 a barrel. This is because it tends to overshoot both to the upside and downside. Many people forget that in 1998 at one point it was as cheap as $10 a barrel ! Many factors are at play, a slowdown in countries like China and Japan a rising supply due to record US production of shale oil and new supply from countries like Libya, Iran and Iraq . However if we do hit $50 I still believe it will be only on a temporary basis. What is interesting is that many oil producers need $80 a barrel or more so as to finance their fiscal expenditure. The recent decision by OPEC to keep production at 30 million barrels per day seems to be motivated at putting pressure on some US shale oil producers who might struggle with oil at below $60 a barrel. My feeling is we are likely to settle in the $80 - $95 a barrel range (for 2015) but short term expect a further fall as wrongly positioned players (i.e. those long futures or with call options at high strike prices) suffer real pain as the price continues to fall. The is a nice VOX post on developments in the oil market here LINK
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