Oil. Up or down>
What now for the price of oil? Its decline has, it seems, driven down the price of every stock on the share-market. W&D remains perplexed as to why the share-price of an Australian bank would go down or up just because the price of oil goes down or up. It's a weird market.
For now, join W&D in looking at the reason for the oil price fall. And what may drive the price back up.
Well, the reason for the collapse in oil prices from $110 (per barrel) to around $35 today is that US shale oil producers increased oil production to 8.6 million barrels of oil per day (MBOPD) in 2014, from 5.5 MBOPD in 2010. And now to well over 9 MBOPD. That put the USA as the world's third largest oil producer. And caused conniptions all over the place.
And then Iraq and now Iran began furiously pumping. And not only did supply go up alarmingly, but oil demand from China dropped by 1.1%. W&D calculates, somewhat roughly (as is always the case) oil supply at some 96.8 MBOPD and demand at 95 MBOPD. Hence about 1.8 MBOPD oversupply.
Imagine that OPEC cuts production by 5%, and Russia follows suit. Or that US shale oil production declines. The glut becomes a shortage. Up goes the price of oil. By a lot.