The price of oil has hit a six-year low and declined more than 50 percent from its most recent high back in July. Before the downward spiral, the industry was doing so well that the US was drilling at record highs, producing more barrels per day than ever with new rigs sprouting up in shale plays like weeds. Although this was significant for the crude oil industry, it seems the media just was not that interested in the storylines that followed. Flash forward to today, you can’t go online or to a news channel without someone talking about the oil industry in some fashion. Whether it’s about another drop in the price, outrageous analyst predictions or massive layoffs, it’s like the media has blown it all out of proportion.
Here are the top three media misconceptions about oil prices:
- The oversupply is causing the US to run out of storage. This report is not accurate by a long shot! Yes, all the drilling over the past two years has increased volume, especially at Cushing, which is all you hear about in the media. Consequently, Cushing only accounts for about 10 percent of all US crude storage. There are plenty of other storage facilities with room to spare even though volumes have increased. The Gulf Coast has plenty of storage space and with companies like Houston-based Enterprise Products Partners (NYSE: EPD) adding more storage facilities, space is plentiful.
- Goldman Sachs forecast is usually accurate. The banking institution is quoted way too frequently in the media with their high-end and low-end predictions on the price of crude. The bank is putting gasoline on a fire when the media reports the latest forecast from one of their many analysts. Their forecasting seems to be done on the back end of the curve. To be fair, I think they know the market but the media blow up every high and low point Goldman predicts. It seems like they are playing the guessing game instead of objectively interpreting market data.
- Fracking is the death to OPEC. This buzz is highly unlikely as well, especially if the Gulf Cooperation Council (GCC) has something say about it. More than half of OPEC’s production is pumped by the four GCC members that have extremely low lifting cost and vast cash reserves. Furthermore, with their influence and massive output, they have maintained OPEC’s position of not cutting back on production levels. Plus with Saudi Arabia exporting so much to China, they had to raise the price. Look for their market share to continue to grow.
These examples are just a few reasons why there are miscues in the media about the current state of oil prices. Join the conversation and let me know what you think some of the common misconceptions of the oil prices in the media are.