Oil Panic! The Three Myths Driving the Market Wild!
The oil market keeps booming, despite the fact that it’s been on a steady decline for years. The recent rise in production has not only caused an increase in prices, but also led to a dramatic rise in the amount of investment around the world. There are some who believe the market is going through another bull run and that prices will continue to soar. However, there are others who think it's all too good to be true and that we could soon see a significant loss due to "false" reports on oil production which were released as a result of manipulative tactics by OPEC and Russia.
There are three main myths that are driving the oil market wild. These myths are creating a sort of "false" demand for oil. In reality, there is no real increase in demand for oil, but the world has been led to believe there is. The most obvious example that shows how this is possible is due to the manipulation of OPEC and Russia, who have released false reports regarding their production - causing panic within the market and pushing prices upwards. At first glance, it's hard to understand how they could accomplish such a feat, but once you look closer at how the market works and take a deeper look at how these two organizations operate – it all becomes clear.
Like I said, there is no real increase in demand. That's not to say demand hasn't increased – it has, but it's not a result of real people seeking to purchase oil as a means of transportation. A lot of the demand in the world right now is fake and not indicative of anything real at all. What we have seen lately with the rise in prices is nothing more than an attempt by both OPEC and Russia to create a false demand for oil.
Before we get into that though, let's take a look at how this massive spike in production isn't actually driven by increased demand for oil.
Jeffrey Nichols, author of The Prize: The Epic Quest for Oil, Money & Power, wrote in a 2014 article titled "Saudi Arabia is at the Root of the Oil Price Problems," that:
"New wells are not being drilled to add production. To drill a well that begins producing oil is expensive and takes time. In addition, it takes time for a well to begin producing. It takes even more time for the well to reach its peak production rate."
So even if new wells are being drilled – it does not mean that much new production is actually coming out due to the fact that it takes years for a well to become profitable and reach peak productivity. In fact, it takes a minimum of six months to reach full production.
So how can there be so much new production coming out when we're just talking about the beginning of the year? Simple. According to Nichols, OPEC and Russia are ramping up production now because they hope to change the price of oil in advance of an actual increase in demand in order to help their foreign economies and make a large profit off of it.
Nichols goes on further to explain that:
"To date, Saudi Arabia has sought market share by making massive investments in new wells and infrastructure across the world.
Conclusion: OPEC and Russia are pumping more oil now because they know the demand for it isn't there. Yes, there is an increase in demand for oil, but the increase is not nearly as high as we have been led to believe.
OPEC and Russia's strategy was to create a "false" increase in demand by pumping out large amounts of oil so that they would be able to sell it at a higher price. In theory, this makes sense. However, this is not going to work if the companies do not convince countries that they have a real effect on the market.