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Friday, May 22, 2015

Dear Oil Market: Welcome to Uncertainty, Regards, OPEC

In a recent article, commodities monitor Saefong on Marketwatch writes that a long term oil glut, over a span of years, is likely if OPEC continues its present course. Interestingly she does claim that the price of petroleum will decline as a result, which the so-called 'laws' of supply and demand would suggest. Wisely, she knows that the price is no longer guided by such laws but by an inscrutable mix of fear, externalities, politics, wars, potential wars, and so forth. OPEC has introduced the oil markets to greater uncertainty. The price could go up or go down, and back again. It is not necessarily under the control of OPEC.

This will still hurt the shale drillers in the US (unless the government supports the industry) because the uncertainty will wary investors will stay away.

The idea that this is about maintaining market share is unclear. The greater uncertainty may make some buyers turn away from unstable suppliers or potentially unstable ones like Saudi, which could surprise them. It could even make some buyers turn to the US or Canada or Venezuela for their supply. Yes, only Saudi can supply oil and still make a profit at low prices. But the new uncertainty does not guarantee that win.

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