unfaire

Oil's Slide: A Result of Capitulation Selling?

I have not studied the oil market at all. Here is just my speculation on the current oil situation.
A little while back, with the easy money policy, we were awash with cash and drove oil-guzzling SUVs and were buying all kind of junks made from petroleum (oil) by cheap Chinese labor. Oil production is limited and it is like the highway when just a few more cars than it can handle it creates a huge traffic jam. High oil price ensued because of the huge demands we put on oil a little while back. Now, the traffic has slackened and the highway remains as before. Of course the oil price collapsed. But it is the traders who blindly bought up the futures got the short end. The oil producers had sold them at the high price but now the traders who cannot take the delivery had to unload them at any low price. The producers are not cutting back the production because they still have the obligation to those traders who bought the future at 100+ a few months ago. They are making a killing and it is the buyers’ tankers afloat with glutted oil.
Now, the government has huge hole in the ground. They can take current delivery at 30 or so while selling futures at 60 or so with 100% profit. I am not suggesting the government is doing it. But, if you own that big hole, wouldn’t you do it?
Don’t believe OPEC will cut back the production immediately. They are pumping oil today for 100+ contracts they sold a while ago and they are selling futures at 60. It is only when the futures get down to below 30, or even below 20, OPEC may really start to cut back.