Why Is The Oil Price Collapsing?

During December 2014 the global oil price plummeted seemingly overnight. Even tough there has been a brief shoot of recovery since such collapse; the on-going energy market rollercoaster is clearly doing more harm than good. What was once the benchmark for crude oil, even West Texas Intermediate saw their oil price drop to below $70 a barrel for the first time to 2010. This dramatic price slump made worldwide headlines and had those who invested in the market worried as to what the future held for the oil price. Even though such concerns are warranted, what many should be asking is why is the oil price is collapsing?

When looking at the failure within the oil price you must start at the top. The most prominent reasons for the issues occurring is that the 12 nation group named the Organization of the Petroleum Exporting Countries (OPEC) is wielding its unrelenting power over the world’s energy markets. The likes of Iran, Saudi Arabia, and Venezuela came together in Vienna and decided not to cut their production levels, which was big news considering such group accounts for around 40% of the world’s oil supply. Such meeting was deemed to be the most important in decades as it came around during a time when the oil price was already experiencing a slump. Investors sat back waiting to see if OPEC would step in to halt the free fall. They chose not to, opting to weather the storm instead, with such decision proving costly as it only worked to compound the misery of the current state of oil prices.

It isn’t just the actions of OPEC that have reduced the oil price to dust. Long-term reasons, including the boom in both US and international production and the lack of demand within both Europe and Japan, have also played a part. The improving efficiency within the world of automobile fuel standards has also had an effect as well. US and international oil production has been descried as “booming”, but that doesn’t necessarily represent something positive. OPEC has reportedly tried to slow down and enforce more steady production, but have seemingly failed to do. With US oil production seeing such relentless growth, along with innovation of new drilling technologies being used to access more oil, it is all contributing to both the collapse and all-round erratic nature of the oil price. When it comes to such, one fact stands out above all others, the US is producing almost twice as many barrels of crude oil than they were a decade ago.

After looking at the facts, the reasons for why the oil price has crashed become evidently clear. It seems the most basic economic factor, supply and demand, has wreaked havoc with the stability of the commodity. The big questions become will the slump be ever lasting? Is it something that investors are going to have to work around long into the future? Well the answer to these questions can only be answered by time.

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Alexander Bowring is a London based writer and a Southampton Solent University Screenwriting graduate. He has worked alongside TV personality and Telegraph feature writer Alison Cork, whilst also having produced content for ITV, This Morning, Canvas8, Who’s Jack, Alison at Home, and Bonallack & Bishop Solicitors. Alexander also has a keen interest in investments.

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