The current falling oil price is not all about excess supply or the slowing down of the global economy. It is about control, the control of world oil prices by OPEC. As US oil producers refined and improved the fracking technology for extracting oil, this has caused a hidden price war launched by OPEC to retain control of the oil market. While there is an oversupply of oil, the largest OPEC oil producer, Saudi Arabia has not reduced its oil production to halt the falling price of oil. Not only OPEC did not cut production, it has just reduced the price of oil destined to the US. This price reduction has two purposes, one is to retain market share, and second is to determine at what price level it will cause US oil producers to cut their production. It is vital for OPEC to know the US producers’ breakeven price level in order to control the world oil market.
Base on recent historical crude oil prices, it is very likely the price of light sweet crude will fall below $75 per barrel, and before OPEC starts reducing its production level, the price of oil could fall to $65 or below to determine the US oil producers’ breakeven price.
Light sweet crude futures:
(click the chart to enlarge)
