The current global concern is none other than the oil price slump hitting new 5-year low with Brent Crude oil price nearing the US$60/barrel while the WTI Crude oil nearing the US$55/barrel. Without doubts, global energy and oil-related stocks (rig builders, oil producers, oil explorer, etc) all suffered heavy sell down for the past weeks and "oil crisis" is the term in investors and analysts mind. Now, is it really an "oil crisis" ? A crisis should be an event which occurred which none or majority did not benefit from it. Has the crash in oil price fit that criteria ? If no, then it should not be labeled as "oil crisis".
Let get some fundamental of oil. Oil is one essential component in this world. Without oil, planes cannot fly, cars cannot move, ships cannot sail and lot of everyday activities will not be possible any more. Oil is also not an unlimited resource in this earth. Not all nations in this world can produce oil and thus pretty much more than half of the worlds is an importer of oil. For every cons of having low oil price, there is a pros to it (or even more pros to it). So is low oil price really a crisis ?
Many are just plain looking at the spiral of oil price to conclude it is a crisis but if you look at the fundamental carefully, it is not. The demand of oil is always there making it is an inelastic demand, almost perfectly inelastic (if not why US instead of going for oil import decides to do its own shale production ?). The spiral of oil price has become none other than speculative and irrational in nature rather than fundamental related. Fingers were pointed at OPEC for not cutting supply in last month meeting but then again, if the issue is of global concern, shouldn't it be a global effort to cut supply, both OPEC and non-OPEC (especially US shale producers which hit 30 years high on output) ?
Oil price will stabilize on the self-correction basis according to the law of demand and supply in microeconomics and a faster way will be for global effort to cut in supply. Focusing and trying to second guess where oil price will drop to is never the correct way to analyze current situation.
