OPEC met Thursday to decide what to do about the world wide fall in the price of crude oil. They have the power to manipulate the price but this time around they decided to hold production levels as is and not cut production which would have reduced the supply. Some of the smaller OPEC members were hoping for the cut in production to stop the fall of the price of a barrel of oil which hit a four year low of $73 a barrel on the Brent benchmark.
The price of U.S. crude dropped below $70 a barrel and drivers are seeing the result at the pump. The major U.S. and OPEC producers have amassed billions of dollars in cash over the last 12 years which has seen the highest sustained price for a barrel of oil and a gallon of gasoline at the expense of the consumer. And one can believe the price has been minipulated.
Now Citibank in a report says the global supply of crude exceeds the demand by 700.000 barrels a day due to a sluggish global economy. Other oil groups say the over supply will continue into 2015. Much of the excess supply comes from U.S. producers from oil shale production which is expected to add 1,000,000 barrels of oil per day this year and next.
What is taking place is a good example why the U.S. will always depend on foreign oil if alternative energy sources are not developed. An over supply of oil means falling prices and the domestic oil companies are not going to stock pile oil and sit on it. Don't be surprised if American oil companies start to cut back on production and scale back some of their operations soon. This writer wrote a commentary some time ago in "PolitiDose" pointing out what goes on in the industry.
There are a number of reasons for the over supply of oil. Auto's with better gas mileage, Europe's sluggish economy, ditto China, Japan, Russia and greed by the OPEC countries and the domestic oil industry in the U.S. One should be able to see that there has never really been a natural shortage of oil or gasoline in the U.S. or world supply. The problem has always been one of manipulation by cutting production to creating a shortage.
OPEC with its decesion to keep production at its current level despite fallen prices is a direct challenge to the U.S. domestic oil industry.
This commentary written by John Lucia.
