Why Oil Is Down: WTI crude oil prices plunged 8% this week, from $53.20 a barrel on Monday to a low of $49.05 today (Thursday, March 9). The shocking fall caught investors by surprise, so we’re addressing this week’s plunge, along with what is next for oil prices in 2017.
Oil is down this week thanks to the EIA’s weekly U.S. crude oil inventory report, which was released on Tuesday. The report showed oil inventories jumped by 8.2 million barrels last week. That was 400% higher than traders expected. S&P Global Platts predicted an increase of only 1.6 million barrels.
The EIA report also came right after Khalid al-Filah, Saudi Arabia’s energy minister, cautioned the annual CERAWeek conference that OPEC won’t prop up oil prices if it isn’t helping Saudi Arabia any longer.
Trending Now: Natural Gas Prices Will Soar Double Digits in 2017
Liquidity moves markets!Click here to learn how you can follow the money.
That has investors concerned the oil supply glut that crashed oil prices last year is coming back. The supply glut caused the price of oil to crash from over $100 a barrel in 2014 to a low of $26.68 in January 2016.
But the real story behind this week’s oil price drop is a battle between American oil and OPEC…
You Have to Understand OPEC to Know Why Oil Is Down
OPEC members need higher oil prices to fund their governments, but higher oil prices also mean American shale oil becomes much more profitable.
You see, the way the cartel raises oil prices is by agreeing to cut production. This reduces the global supply of oil and pushes up prices.
On Nov. 30, 2016, OPEC and 11 other countries agreed to cut production for the first time since 2008. The agreement to cut oil production by 1.8 million barrels sent oil prices rocketing 15% by the end of the year.
But with oil prices back above $50 a barrel, American shale oil is suddenly profitable again. And production is soaring.
According to the Baker Hughes rig count, American producers have added 135 rigs since the OPEC deal on Nov. 30. That’s led to more American oil entering the market. The EIA forecasts U.S. shale production growth to double this month alone. That might be conservative in light of the recent inventory figures.
The result is that OPEC is cutting oil production to boost prices, but American drillers are boosting production to take advantage of the higher prices. Something has to give.
But you don’t have to worry about tanking oil prices. Our 30-year industry insider recently revealed his newest crude oil price prediction for 2017. Here’s the full analysis on why we see crude oil prices climbing double digits by the end of 2017…
About Money Morning: Money Morning gives you access to a team of ten market experts with more than 250 years of combined investing experience – for free. Our experts – who have appeared on FOXBusiness, CNBC, NPR, and BloombergTV – deliver daily investing tips and stock picks, provide analysis with actions to take, and answer your biggest market questions. Our goal is to help our millions of e-newsletter subscribers and Moneymorning.com visitors become smarter, more confident investors.
Disclaimer: © 2017 Money Morning and Money Map Press. All Rights Reserved. Protected by copyright of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including the world wide web), of content from this webpage, in whole or in part, is strictly prohibited without the express written permission of Money Morning. 16 W. Madison St. Baltimore, MD, 21201.
Wall Street Examiner Disclosure:Lee Adler, The Wall Street Examiner reposts third party content with the permission of the publisher. I am a contractor for Money Map Press, publisher of Money Morning, Sure Money, and other information products. I curate posts here on the basis of whether they represent an interesting and logical point of view, that may or may not agree with my own views. Some of the content includes the original publisher's promotional messages. In some cases I receive promotional consideration on a contingent basis, when paid subscriptions result. The opinions expressed in these reposts are not those of the Wall Street Examiner or Lee Adler, unless authored by me, under my byline. No endorsement of third party content is either expressed or implied by posting the content. Do your own due diligence when considering the offerings of information providers.