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Crude Dynamics – Fundamental Game changer

Crude Dynamics – Fundamental Game changer

NYMEX Crude oil has fallen under $85 per barrel and presently trading at $81 bbl. It is may be surprising for many as United States (US) is now engaged in a “war campaign“ against extremist ISIS militants in Iraq. There has been slowing down of crude demand & finally the prices has crashed in last one month.

Recent downtrend in Crude is not surprising

Iraq is on “all out war” but Crude oil prices fell in both July and August month. In the last two month, despite of all Geo-political uncertainty in Middle East, the NYNEX Crude is trading below psychological $ 90 bbl mark.  How is it possible, lets look at few of the fundamental factors:

  1. There has been a rising concern of “overall Global growth”. International Monitory Funds ( IMP) has already lowered global GDP growth outlook. The International Energy Agency (IEA) association also lowered global oil demand growth forecast for 2014. Unless there is improvement of global economic outlook , the demand is likely to be poor for the year 2014. This is a significant fundamental (demand/Supply) driver for poor global oil demand.
  2. Crude oil price fall in last two months due to weak refinery demand in OEDC. This has offset concern about escalating Geo-political conflict in Ukraine, Iraq and Libya.
  3. Most of Iraqi oil comes from near about its capital Baghdad area which is south of its country. But most of the fighting has happened in the north Iraq near Mosul which is second largest city in Iraq. This affected region contributes only about 15% of the total Iraq’s oil production. The oil trader and speculator have assumed that the “war” will be confined only in Mosul area and may not spread to southern Iraq.
  4. Most importantly, Iraq is not that critical to global crude oil production as it used to be. This crisis has lead to ramp-up of oil production in last month and now it is flooded in the market.

Fundamental “Game Changer”  – Watch out for

The biggest fundamental game changer in Energy dynamics (both Crude and Gas) would be “an increased oil production in the U.S”. One may read the fllowing links below to know more statistics. The US has produced more than 13.6 million barrels oil per day in 2nd quarters of 2014, up by 50% from same period in 2009. It means:

  • The U.S. overtook both Saudi Arabia and Russia to become the world’s largest producer of oil. U.S, is now has become the world’s leading producer of oil and gas.
  • US has lifted ban (partial) on Crude Oil exports. It has sparked ripples in major oil markets, as it can drastically change the flow of crude oil across the globe.
  • The U.S. boosted the export of petroleum products and raised crude oil exports to Canada.
  • The export of US Crude oil most probably will go to Europe region as it is  suffering oil shortages


Iraq follows Saudi Price Cut

Most of the west Asia producer are likely to follow Sauda Arabia’s lead. Second largest producer of OPEC will sell its Light crude to Asia at the biggest discount since 2009. At the same time Iran also expected to sell oil to Asia in November at biggest discount, matching the cuts by Saudi Arabia. The scale of November cuts prompted speculator to cut the position


Under this scenario, it is expected that exports from the Middle East to North America and Europe will fall to zero by 2040. On longer term outlook this is very signification. this is a significant fundamental change in global economics & particularly in global crude oil dynamics. This long term crude oil dynamics can surely change a lot of political and economic rational in years to come.


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One Comment to Crude Dynamics – Fundamental Game changer

  1. […] Fundamental Game changer – AUG 2014 […]

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