WTI oil prices plunged to almost $45 per barrel yesterday (Figure 1). That was a downward adjustment to where prices should be based on supply, demand and inventory fundamentals. (Click to enlarge) Figure 1. Oil Prices Are Testing a $45 Floor. Source: EIA, CBOE, Bloomberg and Labyrinth Consulting Services, Inc. Analysts invent narratives to explain why things happen after we already know the answer. In this case , oil prices fell supposedly because of falling confidence that the OPEC production cuts are working, fears of increasing U.S. shale output, and weakening demand from China. None of those factors is new nor did they seem to affect the market a few weeks ago when prices were above $53 per barrel. The real reason that oil prices have fallen is that they were too high and needed to adjust downward. Comparative inventory analysis ( Bodell,2009 ) suggests that the correct price […]