Wednesday, March 6, 2013

Why Oil Prices May Fall Further

Here are three reason oil prices may slide further down:

1. Over-investment.
The level of investment in new and existing oilfields is greater than is needed for current demand.  Once projects begin producing, oil companies will have to discount their oil to sell against existing competition, or in the case of mid-continent US, against insufficient transportation infrastructure.

2. Worldwide recessions and depressions.
Recessions in Europe, China and elsewhere will lead toward demand destruction.  Depressions will keep oil consumption below pre-recession levels.

3. Revenue needs of oil exporting nations.
An interesting idea that nations, such as Saudi Arabia, need to produce more oil to generate more revenue.  The revenue will then be used to increase social services spending, which is supposed to act like a bribe to appease people from revolting against the ruling class.

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