TOPICS: Fluctuating oil prices
The prices of oil can fluctuate by the day, by the hour, even by the minute. In the 1990s the demand for oil had been decreasing but Organization of the Petroleum Exporting Countries ( OPEC ) continued to increase production.
At that time, the price of oil fell $14.30 per barrel in terms of today’s dollar. In 1996, a strong economy in the US and a booming economy in Asia led to increase production by as much as 80 millions barrels from 63 million barrels a day.
Since the early 2000s, Chinese demand for oil has been growing. Its’ manufacturing as well as other industrial sectors have taken off and led to an increase in wealth and in the demand for vehicles.
In response, OPEC has increased its production. The US production had been decreasing due to the aging of the oil fields.
Soon after the invasion of Iraq by the US, there was uncertainty regarding future supplies and an increased speculation on oil which led to a jump in prices.
The prices fell sharply in 2008 as the subprime mortgage crisis gripped US but they recovered in 2009 and 2010 after OPEC cut down its production. After that, United States discovered shale oil.
Companies started investing in new technology which led to a surge in the production levels. Nonetheless, the prices remained high.
In 2014 Libya and Iraq increased its production which resulted in a fall in oil prices. In November, the OPEC members agreed not to slow down the production as they wanted to maintain their market share.
There may have been a conspiracy to bring down the prices. Falling oil prices in the 1980s helped bring down the Soviet Union.
The sanctions which have been lifted in Iran have also contributed to decreases in the oil price.
Saudi Arabia, the largest oil producers among the OPEC countries, has said that the country would cut its production by one million barrel per day next year if Iraq and Iran freezes its increasing production.
It also wants that the non-OPEC members Russia, Mexico and Oman also contribute to the cause. But Russia, Iraq and Iran have out-rightly rejected this idea.
The chances of production freeze between the world’s largest producers have boosted global oil prices. If the OPEC members agree to cut its production then there would be stabilizing of oil prices.
Saudi Arabia may suffer with this deal.
It may lose its market share in the face of a worldwide glut. Also increase in supply of US Shale drillers since 2014 led to the drop in oil prices.