[dropcap color=”#008040″ boxed=”yes” boxed_radius=”8px” class=”” id=””]O[/dropcap]il closed at $44.43 on Friday and has now become a hot topic for discussion. With President Obama voting down Keystone Proposal and the major powers US, China and India committing to aggressively lowering Carbon emissions, one would think that Oil price should have gone up. Likewise, with better than expected job market in the US and Fed signaling that rates may go up in December, the Shale Oil companies will be under even more pressure to maintain operations (most of them have overborrowed and cannot afford to sustain operations if the interest rate goes up on their loans). So then why did Oil close lower?
Perhaps one has to look at Middle East for clues. With Iran’s entry imminent and Libya about to re-start Oil production, there is considerable pressure on prices to stay low. Many of the Organization of Petroleum Exporting Countries(OPEC) economies are dependent on Oil revenues for sustaining their economies and therefore have to keep pumping oil, no matter what the price. In a recent Bloomberg article, according to Mohammed Al-Shatti, Kuwait’s representative to the OPEC, Oil markets will continue to be oversupplied for as long as five years!
Unless there is a geo-political conflict that can disrupt Oil production, it is expected to stay low. This is an excellent time for Oil importers like India to get into an Oil-for-infrastructure type agreements with new suppliers such as Iran, so that they don’t have to keep an eye on their Current Account Deficit. Will they?
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