Crude Oil prices are going down, and the fundamentals of the economy are not helping the case for a further cut in production. Some traders believe that lower prices will make U.S. producers less competitive and reduce their willingness to agree to a production cut. Others, however, see the opposite possibility.
It's a good idea to watch the price of crude oil closely in order to get an accurate picture of where prices will go. Speculation is always an issue, so it is wise to be careful how you weigh your arguments. More accurate analysis comes from using the market data to determine if the current price is fair and if it will remain stable. Of course, there is also the question of what we can do about it.
The price of oil has a constant relationship with supply and demand. The reason for this is that while the United States produces more oil than it needs, other countries such as Canada and Mexico have a surplus of oil because they produce so much more than they need. In order to keep the global economy moving forward, it is important to keep the number of barrels needed up while restricting the amount of oil that is produced.
For several years, there has been a lack of political will and there has been a lot of talk about making changes to our energy policy. However, because there is little support for making any significant changes, the current administration has little incentive to make significant changes either. Unless a major upheaval occurs that leads to a change in government policies, the idea of further lowering of the oil output levels is unlikely.
Crude oil prices are likely to go down for a period of time and for some time to come. This is good news for people who sell oil on the futures market. After all, the value of the price of oil is directly tied to the level of demand. That means that if demand continues to increase, the price of oil is likely to go down.
For those investors who hold oil on the futures market, there is no way that the oil prices can continue to stay at these levels. If the prices go down, most of the purchases by traders will be discontinued. At this point, only small holders can hold out for the prices to rise again, but this is very unlikely to happen.
Right now, the near-term prospects for crude oil prices are very poor. Unless something dramatic changes, the oil market will be hit with a period of severe under-production. Since the prices of gas, food and other commodities have risen, the least that consumers can do is continue to cut back on their consumption.
After this period of under-production, the oil prices are likely to rise again as we begin to enter into a stronger recovery. During this time, traders will still need to diversify their portfolios. However, the timescale for the profits to start increasing again will be slow as we continue to work through the current period of under-production.
As long as oil remains so cheap oil will continue to help prop up the economy and this will help keep inflation under control, especially in an environment where the global economy is still recovering from the recession. This can only mean one thing - lower rates for consumers and a weaker dollar.
At the near term, the only way that prices are likely to fall is if the production levels decline significantly. Right now, this seems unlikely because no nation wants to make cuts, given the damage that would be done to their finances and their competitiveness. Instead, production levels are likely to rise, particularly in the Middle East.
In the near term, prices are likely to go down because no nation wants to curtail production at this point. Most oil producing nations will need to boost their supply in order to compete and if they go over their daily capacity, it is unlikely that oil prices will decrease as they rise again. as demand will increase.