In the fall of 2014, more and more people began to wonder why oil was getting cheaper. Starting September 5, prices for all brands of fuel began to plummet. The trend continues today. History shows that throughout the entire period of the existence of the international oil market, there were significant prerequisites for rising and lowering prices, including those that were created artificially. Autumn 2014 does not fall under one of the historical phenomena.
What is the story talking about?
The oil price chart has been moving rapidly in one direction from time to time throughout the history of the market. One of the episodes took place a year before the outbreak of the Gulf War. At that time, the spot price of oil was only $ 18.05. During the war , Brent crude oil prices reached $ 29, and there were historical peaks at that time at $ 41.5. An interesting fact is that the day before the outbreak of hostilities, and the day after their official completion, the cost of fuel was identical - 19.93 dollars per barrel. Similar situations occurred during the Islamic Revolution in Iran and during the Iran-Iraq war, during the Asian financial crisis and during the second war in Iraq. In September 2014, nothing portended a colossal fall. Like every year, against the backdrop of August, in September, the price fell. The fall was not significant, only 4.5%.
Rapid fall
The fall of 4.5% continued in October, and the question of why oil is getting cheaper today and remains relevant at the moment. When in mid-autumn, oil prices hit $ 86.4 a barrel, analysts began to worry. This is due to the fact that the world had no economic prerequisites for this phenomenon. Although the economies of world countries were in decline, it was very problematic to call it catastrophic or crisis. So low then and relatively high for today, the price level was last recorded in 2010 after the 2008 crisis . The world media began to actively make statements that the manipulation of the United States was the cause of the market situation. What happened in fact is impossible to say for sure, but economists identify several significant factors and phenomena at the same time.
Shale coup
A fairly large number of world experts claim that oil is falling in price due to the carefully concealed real cost of developing shale oil in America. The cost of developing mineral deposits is much lower than that announced to the public. At the Geneva conference, representatives of large oil companies such as Morgan Stanley, Eagle Ford and Barclays Plc., Announced that the cost of shale oil production could vary from $ 30 to $ 60 per barrel. This indicates that the price of "black gold" in the world market is not critical. It was also predicted that the October fall in prices should end soon. Unfortunately, this forecast for oil prices has not come true.
OPEC Country Manipulation
The second factor that has raised concerns about why oil is getting cheaper is the oversupply of the market. In large quantities, “black gold” from Iran enters the world market . Shipments from Latin America and Africa began to occupy a significant part of the market. The policy of retaining the cost of oil by reducing the volume of its production was categorically rejected by OPEC countries. The sanctions lifted by the EU from the largest Iranian tanker company NITC played a large role in the emergence of a large proposal. The EU actively supports Tehran, which is also one of the major suppliers. Fuel began to enter the market from American manufacturers. To say more, in recent years, it was the United States that invested large amounts of money in the mining industry of states such as South Sudan and Chad, Equatorial Guinea and Mozambique.
America's oil dump
Many experts, wondering why oil is getting cheaper, mention America’s global dumping of large volumes of fuel into the market. Part of the national reserve was sent for sale due to the low cost of shale mining. Following America, Canada resorted to a similar sale, which launched a battle for its assets in the Arctic, having begun the development of territories. It is worth mentioning the preparation of President Obama for the 2017 elections, which determines his policy regarding the international oil market.
Erroneous forecasts
Today, oil is falling in price for the reason that in the middle of autumn 2014, many brokers were counting on the resumption of oil prices after the fall. In their predictions, world analysts based themselves on theories of the development of civil conflicts in Arab countries and lost their money. False information about the destruction of transport routes and fuel extraction sites in Arab countries did not play into the hands of speculators. Instead of the expected growth in the destruction of terminals in Iraq and Libya did not happen. On the contrary, now there is not one, but two export centers working there. The war is going on in such a way that it does not harm the oil industry.
Kurdistan, whose oil export is estimated at $ 4 billion, is actively defending its rights. Restrictions and attempts to stop Iran’s supply channels ended in failure. In the summer of 2013, the sovereignty of the Arab Caliphate quasi-state was declared , through whose territory “left” oil was transported to the market. The formation of the state only stimulated the transportation of cheap semi-illegal and illegal oil to Europe.
Change of routes
The oil price chart continues to rapidly move down due to a cardinal change in its supply routes. Attacks by US forces in Syria strengthened Turkish exports from Iraq. Hiding behind the fight against the Caliphate, about 27 oil refineries and the largest Syrian plant were destroyed. As a result, Syria left the list of major fuel suppliers from Iraq. Its place was taken by more productive countries such as Kurdistan and Turkey. More profitable logistics stimulated a fall in world prices. The oil reserves of each of the Iraqi countries are one and a half times greater than the reserves that Russia has. The fall in oil prices will continue due to intense competition between countries. By lowering pricing policies, major suppliers, in particular OPEC countries, intend to oust all competitors.
The conflict between America and Russia
Many experts, trying to explain why oil is getting cheaper in Russia, recall the good old “cold war” between America and Russia. The sanctions imposed because of the military conflict with Ukraine turned out to be insufficiently influential, and the Russian economy was practically not affected. Assumptions indicate attempts to influence the actions of the Russian government by managing world oil prices. Lower fuel costs lead to a reduction in government revenue in dollar terms. Consequently, the ruble against the dollar is weakening. The country's economy is not able to maintain the mining industry in the proper amount. The contradiction in this assumption is only that not only Russia itself, but also the USA and many other states suffer from falling oil prices.
Minor Oil Drop Factors
The oil price dynamics chart shows a downtrend not only as a result of seemingly subtle economic factors. The direction is reinforced by numerous secondary phenomena:
- Climate change in the world.
- Simplified navigational access to new Arctic fields.
- Unjustified Fukushima syndrome in the energy sector. Gas and fuel oil markets increased significantly in volume.
- Active development of technologies for oil production, search for alternative field development options.
What will happen next?
Experts' opinions on the question of why oil is getting cheaper are a little divergent in connection with the economic situation in the world and the active division of the world oil market. Moreover, most of the players are focused on a positive outcome of the situation. On this issue, many major suppliers of goods expressed their opinion. At today's fuel price of approximately $ 55, experts announced:
- Well-known world analysts, oil and consulting companies, experts are inclined toward a price of $ 60.
- The US Energy Information Administration in January called the optimal cost of fuel per barrel at $ 58.
- The Prime Agency, having surveyed about 150 analysts, gives its forecast for oil prices. They predict a change in the cost of a barrel in the range from 50 dollars to 80.
- Analysts of the famous company "Goldman Sachs" settled on a forecast of $ 50.
- Bank of America Merrill Lynch is bidding on a price of $ 40 per barrel.
- The president of the LUKOIL corporation is inclined to the cost of oil at $ 60 per barrel.
- Morgan Stanley experts suggest that in the first and second quarter of 2015, the cost of oil will be kept at around $ 57. At the same time, the third and fourth quarter of the year, according to company representatives, promises a sharp increase in the cost of petroleum products to $ 70.
- Swiss banks look at the situation and are completely optimistic. They believe in setting oil prices at $ 70- $ 85.
Despite the refusal of many large oil companies in the world from their plans and projects, their expectations remain very optimistic. Despite the tough policy on the part of OPEC, the vast majority of specialists are inclined to believe that the situation on the world oil market will soon be leveled, and all the losses incurred by both countries and individual companies will be able to be restored. In the meantime, the trend is falling, and why oil is getting cheaper today, no one will undertake to explain.