CRASH IN OIL CRUDE PRICES

The outlook for oil prices remains very gloomy. OPEC will keep its output at 32 million b/d for the time being and Iran is expected to be increasing its exports in the next few months. Some are now saying that it will take two years to eliminate the excess crude stockpiles after supply and demand are brought back into balance.

It is becoming obvious that there will be a major shake-out in the oil and gas industry in 2016.  With current prices as low as $ 28/b, hedging with futures contracts no longer profitable, and the opportunities for cost-cutting and other efficiencies running thin, many oil production and service companies will be closing their doors this year. In short, oil production is going have to get a lot lower before supply and demand comes back into balance.

Oil prices are separating the oil haves from the oil have-nots. Most of the oil-producers are now in a troubling position

Saudi Arabia has decided not to answer desperate pleas from less affluent members like Nigeria and Venezuela to cut production. The Saudis have said they are only willing to talk about production cuts if Iran, Iraq and non-OPEC members like Russia do the same. That seems unlikely and doesn't even account for the U.S., where independent oil operators do what's best for themselves. It's also important to remember the politics at play. The Saudis  want to prevent Iran, their longtime enemy, from gaining market share or the profits that higher oil prices would deliver.

OPEC MEMBER COUNTRIES

• Algeria
• Angola
• Ecuador
• Indonesia
• Iran
• Iraq
• Kuwait
• Libya
• Nigeria
• Qatar
• Saudi Arabia
• United Arab Emirates
• Venezuela

Non-OPEC Producers

• Russia
• United States
• China
• Mexico
• Canada
• Norway
• Brazil
• Kazakhstan
• United Kingdom
• Azerbaijan
• Oman
• India
• Colombia
• Argentina
• Malaysia
• Egypt
• Australia
• Sudan
• Syria
• Equatorial Guinea
• Yemen
• Vietnam
• Congo Brazzaville
• Denmark
• Gabon
• Brunei
• Trinidad & Tobago
• Tunisia

REASONS WHY LOW OIL PRICES ARE A PROBLEM

1. If the price of oil is too low, it will simply be left in the ground.
2. The drop in oil prices is having an impact on shale extraction and offshore drilling.
3. Shale operations have a huge impact on US employment. 
4. Low oil prices tend to cause debt defaults that have wide ranging consequences. If defaults become widespread, they could affect bank deposits and international trade.
5. Low oil prices can lead to collapses of oil exporters, and loss of virtually all of the oil they export.
6. The benefits to consumers of a drop in oil prices are likely to be much smaller than the adverse impact on consumers of an oil price rise. 
7. Hoped for crude and LNG sales abroad are likely to disappear, with low oil prices.
8. Hoped-for increases in renewables will become more difficult, if oil prices are low.
9. A major drop in oil prices tends to lead to deflation, and because of this, difficulty in repaying debts.
10. The drop in oil prices seems to reflect a basic underlying problem: the world is reaching the limits of its debt expansion