Watched your video on Yellen, and you mentioned oil in the video. Over the summer, I became obsessed with oil prices because (for the life of me) did not understand why it was being priced as it was. To hear public sentiment, you were going to drive up to the gas station and they were going to pay you.
I want to take it from three general influences of price (however, I think there is an unspoken fourth factor). Supply, demand, and sentiment.
Supply side- I realize we have found new reserves/processes in the US and Saudi is pumping out oil to near capacity so that will increase supply into the market. However, the market stating the Saudi is doing this to run out American producers and to gain market share was either not true or naive. I feel it is the former. In respect to American producers, even if US producers stop pumping/fracking, that metaphoric genie is out of the bottle. Meaning, the minute the price goes up ....it will be pumped again, even if it is by a different producer. Secondly (in respect to Saudi), they are a one trick pony. Their GDP is sustained by oil. Saudi needs oil to be at 100 a barrel. In the OPEC arena, half of those countries needs it to be higher and those economies are quickly failing. Saudi isn't doing much better as they hard to borrow billions over the summer. So Saudi has no intention to keep these prices this low...even if they wanted to. As to other oil producers, cut backs are being made...and now imports are increasing. Why should a refinery pump oil out of the ground at a loss, when they can buy from you (because you are taking the loss). Finally, we probably do have a lot of oil in the ground. BUT a) this is a finite source in the end and b) do you REALLY know how much is in the ground? In respect to Saudi, I am more inclined they are trying to keep a new genie coming out of the bottle..namely the South China Sea. China is Saudi's number one customer. If China is sitting (whether it's theirs or not) on a huge oil reserve, not only would Saudi lose a customer but gain a competitor. Israel is also getting into this game, lately.
Demand- The longer oil prices stay depressed the quicker it's demand rises. Oil is a homogenous product but does not have a lot of substitutes and those substitutes do no quickly come into play. On the consumer side, a person may buy a less gas efficient vehicle. They may opt for a job further away. Now that the general consumer has more money in his pocket (because he didn't put it in his gas tank) he may go to the movies more. This could increase the demand for raisinette packaging needing to be imported (and the tanker and truck...that runs on oil products) that delivered it. From a corporate side, companies may make import intensive contracts because it is cheaper. They airlines may opt not to hedge fuel costs. And let's not forget the number one entity that consumes oil, the US Military. I suspect a lot of mobilization has transpired amongst global militaries and that requires a lot of fuel. However, the EIA reports seem to be counterintuitive to this concept. If an oil spike occurs out of nowhere, you aren't going to immediately sell your car and quit your job. So the demand for oil is "sticky downward."
Sentiment....Historically, potential for disruptions of supply (ie like the world's major producers of oil and the region where we get it from) on the verge of war should skyrocket oil. Yet, it is being shrugged off. It's like telling your neighbor his house is on fire and he says "I'll look at it when I get home." So if all the producers are in conflict, WHY is none of this being priced in. I think oil should be priced at about $80 under normal conditions. I feel (at best and with extreme politeness) that the govt reports are being overly conservative and the analysts are not taking in factors that seem common sensical to me. They, occasionally, provide lip service to it but they do not change their position. Of course their time horizon (the next 48 hours) and mine (the next 48 months) may be different. Not to mention, other countries like Russia uses oil as a large source of income and this hurting Russia's purse.