Wednesday, January 25, 2017

The U.S. May Crash Global Oil Prices

The oil prices crossed the $50/barrel barrier in December and are currently entrenched at around $55/barrel level (Brent Crude Oil). This has been possible due to the plans by the OPEC and other oil producing nations to reduce their oil output. However, the recent days brought expectations that the increased production of shale oil in the US would reduce the impact of those outputs cuts. These expectations have had a rather insignificant impact on the oil prices in the recent days. But, going forward, this impact could be much bigger.

The investment bank Goldman Sachs was reported by the CNBC to anticipate a 25% jump in the prices of U.S. crude futures, also known as West Texas Intermediate (WTI), in comparison to the global prices if the U.S. implements a switch to border-adjusted corporate tax (BTA). This would trigger large-scale production in the U.S. The U.S. crude oil production has been rising steadily since mid-2016. However, at the moment it is still about 7% lower than its historic maximum, posted in mid-2015 (see below).

It is Donald Trump administration’s goal for the U.S. to become energy independent. On the path to this goal, there are many technological and regulatory obstacles, and oil futures currently only imply a 9% probability for such a shift, said Goldman Sachs. But, if implemented, this shift will drive ex-USA oil prices (Brent Crude) down to $40/barrel in 2020, according to Goldman Sachs. 

Ukrainian Credit Union Limited

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