http://www.telegraph.co.uk/finance/oilprices/11283875/Bank-of-America-sees-50-oil-as-Opec-dies.htmlQuote
The Opec oil cartel no longer exists in any meaningful sense and crude prices will slump to $50 a barrel over the coming months as market forces shake out the weakest producers, Bank of America has warned.
Revolutionary changes sweeping the world’s energy industry will drive down the price of liquefied natural gas (LNG), creating a “multi-year” glut and a much cheaper source of gas for Europe.
Francisco Blanch, the bank’s commodity chief, said Opec is “effectively dissolved” after it failed to stabilize prices at its last meeting. “The consequences are profound and long-lasting,“ he said.
Saudi Arabia is leading the charge to maintain its market share, and they're trying to drive higher cost-of-production producers out of business. This is having profound impacts across the globe. Russia, which requires very high oil prices to break even, is losing tens of billions it can not afford to lose, calling into serious question its ability to act aggressively in the Ukraine, or holding a LNG weapon over Europe's head. Nigeria and Venezuela are being hit especially hard by falling prices Venezuela needs high prices to support a litany of public services, and a partial collapse of government is possible. The current price of oil is already pushing some high-cost shale producers in the US into the red. How long can high-cost fields maintain production while the price is low?
On the other hand, this is a major boost to the economies of the world as a whole, amounting to a roughly 1 trillion dollar tax cut equivalent worldwide. Consumers are finding more money in their pockets every month this lasts. Low oil prices are clearly good for most people, though it will impact producer's job levels in many areas.
The article somewhat seems remiss that oil price stability may be gone, but is that really a bad thing? Replacing artificially high stable prices with fluctuating markets?
On a side note, I've noted many times in PaRD that the current economic "growth" of the last 6 years is an artificial construct borne of loose monetary policy, and BoA apparently agrees in a major way:
Quote
What is clear is that the world has become addicted to central bank stimulus. Bank of America said 56pc of global GDP is currently supported by zero interest rates, and so are 83pc of the free-floating equities on global bourses. Half of all government bonds in the world yield less that 1pc. Roughly 1.4bn people are experiencing negative rates in one form or another.
These are astonishing figures, evidence of a 1930s-style depression, albeit one that is still contained. Nobody knows what will happen as the Fed tries to break out of the stimulus trap, including Fed officials themselves.