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Demand And Supply Suggest Oil Prices Could Drop Below $50.00 a Barrel

Oil prices could be headed much lower. With this, don’t be shocked to see oil-related investments doing poorly.

From its highs at around $77.00 a barrel, the West Texas Intermediate crude (WTIC) oil price has fallen to below $66.00. This represents a decline of over 14%.

As oil prices have come down, oil stocks have tumbled, too.

Here’s the thing; the decline could get much worse going forward…

The oil market is going through a basic economic problem; there’s too much supply and the demand could be dwindling. This disparity could turn out to be really bad for oil prices.

The Oil Market Could Be Getting Flooded With a Lot More Oil

Oil production is on the rise.

Consider the U.S. It is producing a record amount of oil. Just look at the chart below to get some idea. The U.S. oil production has shattered records.

(Source: “U.S. Field Production of Crude Oil,” U.S. Energy Information Administration, last accessed October 23, 2018.)

Between January and July 2018 alone, U.S. oil production has increased close to 10%. And, it doesn’t look like it will calm down anytime soon.

But don’t just look at the U.S. alone.

Know that if a country produces oil, chances are that it’s producing more now than it was a few years back.

Saudi Arabia, in the midst of all the scrutiny it has been facing due to the killing of a journalist for The Washington Post, has come out and said it will produce more. Prior to this, it was widely believed that the monarchy would use oil as a weapon to remain relevant.

Production increases make sense too; oil prices are high, so why not extract as fast as you can and get a better price?

Global Oil Demand in Jeopardy

On the other hand, the demand side doesn’t look that great.

Consider the chart below. It plots the U.S. Energy Information Administration’s global oil consumption. It projects the demand until 2019.