Former Fed Chair Alan Greenspan appeared on Bloomberg TV Friday to talk about the oil market.
Specifically, he zeroed in on the problem going on in the US market: basically, production hasn’t dropped like people expected it to, and it’s largely illegal to export American crude, so all of the excess oil is building up in storage.
Because of those things, Greenspan thinks that the price of WTI crude, the US benchmark for oil prices, is going to keep going lower.
Here’s what Greenspan said:
If you look at the data, as you just pointed out, our major domestic facility is in Cushing, Oklahoma, which is delivery point for West Texas Intermediate crude contracts. We are at the point now where, at the current rate of fill, we’re going to run out of room in Cushing by next month.
And then the question is — where does the crude go? Because everyone’s forecast as to what was going to happen when prices collapsed was a sharp curtailment in shale oil production. That has not happened. The weekly figures, which are produced by the Energy Inter-Nation (sic) Agency through March the 6, show a continued rise in domestic crude production and it has got no place to go, because we can’t legally export the way we would for most products. We can do a little exporting and Canada, but essentially, we’re bottling up a huge amount of crude oil in the United States.
So that the West Texas Intermediate price is running $US10 a barrel on the Brent crude, which is the global price. And that basically means that we are creating great abnormalities in the system. And unless and until we find a way to get out of this dilemma, prices will continue to ease because there’s no place for that oil to go except for into the markets. And spot crudes are especially vulnerable because of so-called contango is a very high level, and that implies that there’s a very, very significant set of pressures on the spot price.
So, the US either needs to produce less or figure out a way to export oil.
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