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Top 5 reasons of falling Oil prices

OIl pricesOil price have been falling over the past few months and according to some analysts, they might even steep further down. A variety of factors have caused the decrease in the falling oil prices and its direct result can be observed in the American market as barrel prices have fallen from $115 a barrel to $80 a barrel in a matter of few months although the oil prices had been $115 a barrel since 2011 onwards. The falling of the oil prices was way ahead speculated by Goldman Sachs. He predicted the oil prices to go down based on two reasons which are the oversupply of oil as a commodity and the weak demand that the market will hold for oil in the near future. Oil prices could go down as low as $70 a barrel anywhere in 2015, according to Goldman Sachs. But this doesn’t mean that the oil market will go through the same fate as predicted because it depends on a variety of factors and is very unpredictable because of reasons such as government interference, cartel running, and high barriers and obstructions to entry. This has been an advantage for the motorists all around the world who are enjoying the lowest gas prices of all time, the only downside being the purchase of inefficient vehicles with high consumption.

Relief for the countries exporting oil may not come anytime soon. The top five main reasons of falling oil prices have been:

  1. US oil production is skyrocketing

Due to the increase in the oil production of USA, the country has now transformed from one of the biggest consumers to one of the biggest producers as well. When North Dakota is producing more than a million barrels a day it’s no surprise that the production levels of USA has now rivaled Saudi Arabia and Russia too. This has been achieved by innovative drilling techniques which can now extract oil from places which was not possible before. Because of this analysts believe that the oil prices could slide down to $3 a gallon before the end of 2015.

  1. Saudi Arabia’s fight for market share

Saudi Arabia is undoubtedly one of the largest oil producers of the world producing more than a million barrels a day and in the fear of losing customers, Saudi Arabia has lowered the prices themselves to gain the market share from USA until the prices again. The OPEC countries however disapprove this strategy of Saudi Arabia.

Crude Oil Chart

Crude Oil chart

  1. Asian demand is dropping off continuously

Although the supply of oil from the US and OPEC countries has been very high and consistent, the demand to use all that oil is not that much by the biggest consumers which are India and China. This might also be because of the global recession and governments cutting down of fuel subsidies in Asia. As a result, the oil prices further shoot up in these regions and the demand decreases.

  1. The US dollar keeps on getting stronger

As the US dollar has been strong for quite some time, it makes oil more expensive in the regions of Asia and hence the demand decreases and the prices go down worldwide. Therefore oil might be cheaper in the US but for consumers of other countries, it might be expensive. In a nutshell, although the price of oil is falling, it is falling less for the less developed countries.

  1. Libya and Iraq back in action

Libya and Iraq have been producing oil even in the times of economic and political unrest and the flow has been consistent. Both of them and even Sudan and Nigeria have been flooding the market with oil at a time when the demand is already very low.

This has contributed to an oversupply of oil in markets where it cannot match the demand and in order to match that demand, the price of oil is increasingly being reduced.

 

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About Emaad Qureshi