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Aztec Flyer
I did. To hard to read the graph. I think OPEC can cause "short term" price hikes. My current thinking is they can reduce output to slowly chip away at over supply; as they did over the past year. Any significant supply cuts which drive up prices will only work for one, maybe two years before enough new capacity comes online to solve the supply problem. My curiosity is how long do you think OPEC can do it?
Tim
Sorry for the delay in response @tspear but I had to head to my office this afternoon and was not trying to deliberately ignore you.
There are lots of things that influence the price of crude oil. Revolutions in Iran, Iraq invading Kuwait and Gulf War 1, a Twitter from the President, an anomalous change in hydrocarbon inventories (broadcast every week by breathless "financial journalists" on Bubblevision desperately trying to inject enough emotion to make it seem important), deposing of long standing Libyan dictators, economic collapse and hyperinflation in Venezuela, news of the threat of terrorism at a Saudi oil facility, and even civil war in Syria - a nation that has only a minuscule amount of oil.
All of it is noise. As is OPEC (and Russia).
Let's look at Gulf War 1 as an example: In January 1990 WTI crude averaged $21.42/bbl. In August Saddam invaded and occupied Kuwait. Oil prices in August averaged $25.69 and jumped to $34.69 by October (with spot market trades touching $40 - which is of course the price that made the sensationalized headlines). By December 1990 the average price was down to $26.00 with the US-led coalition campaign not yet started. The US Navy started bombing Baghdad on Jan 17, 1991. By the 28th of Feb it was all over, except for the massive fires in the Kuwait and southern Iraq oilfields which took months to bring under control and restore considerable lost production. Despite the loss of production the crude price fell to $18.28 by the end of that year.
In the grand scheme of things in global petroleum markets it was all noise. One brief spike, among others, in a relentless two decade secular decline in the price of oil, from the 1981 post-Iranian Revolution high (when some forecasters insisted oil was heading to $100/bbl).
In February 1999 WTI averaged $9.30/bbl. Anybody remember this infamous Economist Magazine cover? March 6, 1999. The story inside? Crude at $10, heading for $5.00. "Forever". Just about called the bottom in crude precisely.
There is nothing, absolutely nothing that influences the domestic price of crude oil more than the comparative level and trends of the US Dollar international exchange rate. The rest is just noise.
Below a couple of not-so-great-but-the-best-I-could-do-in-limited-time charts of movements in the past year or so. The first charts the cyclical downtrend in the US$ index (blue line) and the consequent rise in crude price from Apri 2017 and Jan 2018. The second chart is expanded a bit to show the flattening of the $ decline as last year ended (with crude going pretty well sideways) and the subsequent recent US$ rise (due to major capital flows into the USA as a result of the corporate tax cut repatriations and safe-haven funds flows from a Europe in political turmoil (Italy, and this week Spain) + Chinese corruption proceeds via Hong Kong.
You can plot charts like this forever. A year, a decade, go back three decades or more. Like any correlation between the comparative value of the US$ and the price of crude is not perfect, but its pretty bloody high. And given the US$ is the global reserve currency, and how the overwhelming majority of the produced crude barrels in this world are priced, why is anybody surprised? Now that the USA is rivaling both the KSA (Kingdom of Saudi Arabia) and Russia for top spot in the global crude oil production pantheon this correlation is becoming greater. Think of the US$ as now being on an "oil standard".
All it takes is a small increase in US$ confidence and the price of crude responds.
This is not an economics forum, and I don't know if I have persuaded anyone here to reconsider long held belief systems in what really drives the price of oil. But that's about all the time I got for now.
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