Global Oil Prices Slide Due To Supply Concerns

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Oil Crash Graphic
Graphic of Oil Prices
Crude is Falling Daily Due to Oversupply and Lower Demands
Crude is Falling Daily Due to Oversupply and Lower Demand

It was only a matter of time until the recent rally in oil prices will start to head south. I have always maintained that there are supply and consumption demand issues that oil boosters have not fully addressed. They are faced with a serious paradox: when oil rigs are decommissioned, the total amount of oil being pulled out of the ground, at least in the United States, actually increases. That is how efficient the oil extraction industry has become in the United States.

It appears that Saudi Arabia’s gambit in cementing its Asian market share is facing a lot of resistance from American oil extraction technology. It is no surprise then that according to American Petroleum Institute, the total number of oil the U.S. has stockpiled grew by 14.3 million barrels. You would think that at the rate oil extractors are shutting in oil rigs that this number would be lower. Unfortunately, oil extraction technology, in the United States at least, has progressed to the point that it appears the U.S. can go much longer with even fewer rigs.

It is not like American oil companies are not being aggressive in shutting in oil rigs. The number of oil rigs has crashed dramatically. There is still so much supply that this is sure to set another downward trend in oil. There are some analysts who think that the real bottom for oil prices is around 20 dollars. I am not so sure if this is good for the health of the overall global economy. While it is nice to drive up to your local gas station and enjoy really low gas prices, you have to look at the larger global economic figure. Oil at 20 dollars per barrel might set off all sorts of geopolitical risks as well as unintended consequences. As the old saying goes, be careful what you wish for.

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