Oil Collapse

Monday, January 5, 2015 – 10:30 a.m.

Crude Oil prices plunged again on Monday morning due to an ever increasing oversupply.

The price of West Texas Intermediate Crude (WTI) briefly fell below $50 per barrel, a drop of nearly 5%.

Analysts expect prices to fall further into the forty’s, with at least one predicting a long term bottom of $33.

The price fall, driven by a producer battle for global market share, and weakening European and Chinese demand, is being exacerbated by increased U.S. production from Hydraulic Fracturing Technology.

The big question here is what investment firms, such as hedge funds, are under margin pressure due to being on the wrong side of the energy trade? In other words they bet on higher, not lower, prices. In other words, someone, somewhere, is taking massive losses on this collapse.

Any fund with a large long investment in energy is taking a bath.

Another interesting point is how much of an impact the lower gas prices is having on government tax coffers? Percentage-based taxes on fuel, such as sales tax, are in the midst of a precipitous nationwide fall.

Eventually the low prices will slow production. But the big question is when, and for how long?

On the bright side, the lower out-of-pocket for consumers acts as a form of a pay raise.

Will the drop in energy prices translate into lower costs for other goods and services?

That remains to be seen!