By Myra P. Saefong

Crude-oil prices have lost more than half their value since their peak in June 2014

Here’s a detailed look at the key reasons behind crude-oil prices’ recent descent:



1.OPEC
To be sure, OPEC has played an oversize part in oil’s price plunge.

Prices have fallen every day since the cartel on Friday decided to continue pumping oil at its current output level, which essentially legitimizes production of roughly 31.5 million barrels a day, which was running above OPEC output ceiling of 30 million barrels a day.

On Thursday, a report from OPEC showed an increase in its November production to 31.695 million barrels a day, the largest monthly level in three years. But OPEC also cuts its forecast for non-OPEC production in 2016, citing the impact of low oil prices and falling investments in the oil industry.

“The low prices may force enough private oil companies out of business, which then will help OPEC,” said Charles Perry, chief executive officer of energy-consulting firm Perry Management. Still, he believes that “OPEC is immediately hurt the most by this overproduction of oil,” as most members’ economies depend on oil income.

2.U.S. shale output
U.S. oil production has started to buckle under the pressure of low prices, but it hasn’t shown a steady descent.

Domestic shale-oil output is expected to fall to 4.861 million barrels a day in January, down 116,000 from December, according to a report from Energy Information Administration released earlier this week.

Total U.S. oil production fell 38,000 barrels to 9.164 million barrels a day for the week ended Dec. 4, according to the EIA, but that is still above the year-ago level of 9.118 million.

Based on current drilling costs, Perry estimates that a break-even price for shale-oil production would be at “something less than $40 a barrel because there is still a lot of drilling going on at this price.”

The “’drop dead’ price when it gets low enough to stop all significant drilling is probably down at $25 to $30 a barrel,” he said. Even then, drilling will merely “taper off as it approaches the absolute break-even.”

3.Global supplies
The International Energy Agency said that the world’s stockpile of oil sits at a record 3 billion barrels and it has been growing.

“Demand growth has risen to a five-year high of nearly 2 [million barrels a day]…but gains in demand have been outpaced by vigorous production from OPEC and resilient non-OPEC

4.The dollar
A rise in the U.S. dollar and expectations for further strength as the Federal Reserve meeting approaches also have played their part in oil’s drop.

Since OPEC’s decision back in 2014 to keep, its production unchanged, the decline in oil prices “was more a result of a strengthening U.S. dollar than any calls around an ‘oil glut’,” Carl Larry, Frost & Sullivan’s director of oil & gas, said in a statement.

“OPEC countries are producing a barrel of crude that is losing value because it’s based in [U.S. dollars],” said Larry.

Source:http://www.nairausd.com/2015/12/4-reasons-crude-oil-prices-are-in-nasty.html?m=1

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Nice analyst