Archive for December, 2014


Why is Oil falling?

Just before the 2008 crisis during oil’s peak it had climbed to nearly $146 a barrel. Traders and pundits alike were calling for $200 or even $250 oil at that point. It then collapsed to nearly $32 a barrel as well as gasoline futures down to $1 a gallon over the months as the Great Recession of 2008 came into effect. Initially the Federal Reserve pinpointed that collapse as the reason behind the start of the 2008 recession but later retracted the thesis outlining that from their website. Strong rallies occurred to bring the oil back up over $100 a barrel and even to around $120 a barrel where it had been propped up for quite some time. In recent weeks on the markets, oil futures have taken a beating as well as gasoline futures. Why has this happened? Let’s look at some reasons:

– Russia has huge investments in oil and a collapse in the price of oil would completely destabilize it’s government (remember the 1990’s?) as well as smaller nations such as Venezuela who pose a threat to Western Powers.
– The Saudi’s have lost market share of oil production to foreign producers and can afford to crash the price so as to crush competitors and force them to slow production.
– The United States can afford to also produce oil at very cheap prices as well as OPEC nations so they too can afford to crash the price so as to crush competitors and force them to slow production or close up shop (i.e. Canadian Oil Sands).
– margin debt trading hit all time highs recently (as it was before the 2007/2008 decline) and the CBOE (Chicago Board of Options Exchange – an organization mired in a history of corruption) raised margin requirements for Oil, a dubious movement which they have performed in the past to control the prices of various commodities.

It becomes fairly easy to understand why oil is crashing and the political reasons behind it.