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Gold/Mining/Energy : Big Dog's Boom Boom Room
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To: Biomaven who wrote (187502)12/30/2014 10:22:12 PM
From: Elroy  Read Replies (1) of 206093
 
My own (partial) explanation is that the very low interest rates and easy money that have prevailed for the last several years have enabled commodity suppliers to ramp-up supply faster than demand. Certainly the oil weakness is primarily supply-driven rather than demand-driven.

I'd also add efficiencies on the demand side. Look at the automotive industry for example. There is a lot less steel in a car than there used to be, and much of that steel is now recycled via mini-mills instead of being new production. The average fuel economy of new cars is now over 25 MPG.

Some part of the weak commodity prices also simply reflect the strong dollar.

The final piece of the explanation is that the Chinese rate of growth was unsustainable. As that has now slacked off some, they can no longer make up for weak demand in the rest of the world.

This all makes sense, but most of it has been ongoing for 2-3 years. Sorta hard to understand how all those things existed last summer and oil was still $90 barrel.

My guess is the Saudis are actually producing more since summer in order to punish the Iranians (and thus the Syrians and their conflict) and also punish the Russians (Syrian supporters). So the economics and demand around oil and the global economy haven't changed so dramatically, but the Saudis want a lower oil price for political reasons, so they're going to make it happen.

Just a hunch.
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