Oil prices are literally crashing on the supply shock. Oil was trading at $117 per barrel last year May. Suddenly the prices starting going down when Saudi Arabia began to oversupply the market. Initially market analysts said Saudi Arabia wants to bankrupt the US Shale Oil Companies who are heavily leveraged by bringing down the oil prices and making those companies unprofitable to repay their loans. But no body expected the prices to collapse so much and reach $40. Now market analysts are predicting oil price to go below $30 per barrel.
There has been reports circulating in the financial media that oil price collapse is part of of US secret war on Russia. Russia and Iran are heavily dependent on oil revenues and this is an attempt to damage both these countries economically. Whatever maybe the game plan, lower oil prices are benefitial for the global consumers. However lower oil prices are threatening deflation in Eurozone and ECB will need to take drastic action.
Saudi prince Talal is of the opinion $100 per barrel maybe history now. The last time excess supply caused a plunge in oil, it took almost five years for prices to recover. The CHART OF THE DAY shows how West Texas Intermediate, the U.S. oil benchmark, tumbled 69 percent from $31.82 a barrel in November 1985 to $9.75 in April 1986 when Saudi Arabia, tiring of cutting output to support prices, flooded the market. Prices didn’t claw back the losses until 1990. Oil has dropped 57 percent since June and OPEC members say they’re willing to let prices sink further.