Sunday, January 25, 2015

Analyst says oil price plummet primarily driven by OPEC abandoning swing producer role

Dirk Leach, who also credits the rising dollar but not to the extent others have, here:

"Now that OPEC has abdicated their role as swing producer, the only mechanism to stabilize oil prices is the market itself based on supply and demand. As we are now seeing, the supply side of that balance has a lot of inertia. Despite some analysts' view that shale production can be turned on and off rather quickly, the time it takes to decrease production is measured in months or quarters while the crude oil price response is essentially immediate. Going forward, we appear to have a crude oil market pricing system with a very fast response time and a very slow feedback mechanism (supply adjustments). Generally, this type of system is not very stable and results in frequent large swings in market pricing. Going forward, it might be a more bumpy oil market than we have been used to."