The Reckoning Of A Collapsing Oil Price, Production Demand, And Market Stimulus

December 17, 2014, by Ken Jorgustin

oil-price-production-demand

The price of oil ‘should’ be decided by supply and demand. Instead though, and as with many other markets, price has been decided by hedge funds, speculation, and financial policies which have inflated prices beyond the ‘real’ fundamentals.

So the question is, what happens when market realization sets in that the air that has been inflating the balloon has suddenly stopped?


POP!

 
Have you wondered why the price of oil has been plummeting?

Here are several things to consider:

 
The China bubble is bursting. China’s president Xi has halted it’s stimulus policy. The economic stimulus that pumped air into China’ s demand bubble (also affecting the US financial asset bubble) have stopped pumping.

‘Real’ production demand fundamentals have not increased – only the asset bubbles within the propped up and manipulated markets.

Today’s ‘Boomers’ are aging, and demand is weakening (unlike their earlier years when Boomers created more production demand).

The US Federal Reserve’s Quantitative Easing (QE) policy has halted – the same policy which had not only averted a financial collapse in 2008, but it’s continued stimulus led to expectations and dependence within the financial markets of endless ‘false’ growth stimulus. Any hints of bad economic news actually bolstered the stock market (which in turn would anticipate more federal pumping – thus bolstering the markets and further inflating the bubbles).

Geo-political factors have kept the Saudis from reducing their oil production (reducing production output would raise the price of oil). The Saudis are saying that they want the markets to decide the price. But a more accurate reason why they’re not reducing their production ‘might’ be a political and economic squeeze against the Shias of Iran and Iraq – along with their desire to hurt Russia for its support of Assad – and to hurt the efforts of competing shale oil production (which requires a higher priced oil to be feasible).

If you haven’t been paying attention lately, the Russian stock market has been collapsing and the Russian Ruble has been plunging. A Russian collapse is apparently occurring. Do you think that President Putin will sit by and let this go down without a fight? On the contrary, one might consider the dangerous situation that is unfolding there and what might happen as a result of Putin being seemingly trapped in a corner. This could become very dangerous indeed while considering his reputation, his statements, and his actions.

 
Price manipulation is apparently finally unwinding. The recent lower price of oil in my estimation is a reflection of plummeting demand due to Geo-political fundamentals becoming more ‘real’.

While on the surface you might think that things are good with a collapsing oil price (lower gasoline prices, etc..), and while a lower oil price will lower costs over time, the short term bigger picture is the potentially severe damage taking place right now (or in the near future) due to a rapidly deflating price bubble. What you need to understand is that bubbles deflate VERY QUICKLY, and if this is the big one – then look out below…

 
What’s your opinion?