Excess Oil Supply, Lower Oil Prices
The price of oil was at its lowest level ever since 2009. Brent crude oil, among the many kinds of oil in the world market, was below $40 per barrel on Tuesday. But the major countries that produce oil weren’t able to slow down production to reduce supply.
Last week, the Organization of Petroleum Exporting Countries (OPEC) was in Vienna. The organization said that member countries should take part in climate change-related talks like the COP-21 meeting held in Paris.
Further Reduction of Oil Prices
After OPEC’s meeting, several Goldman commodity strategists noted that the oil prices might still go down further by 50% in the upcoming months, as the oil market is looking to re-balance the supply and demand in the market.
OPEC members have increased their production and even exceeded their limit for the past 18 months as they try to compete with smaller rivals like the US shale producers.
Some oil producers in the United States use hydraulic fracturing to ramp up oil supply. However, these methods actually cost them more compared to the traditional drilling methods that are used in other countries like Saudi Arabia. The costs include the indirect pollution and ground water or little earthquakes happening in some places.
The Demand for Crude Oil
According to many experts the demand for crude oil around the world is currently at 2 million barrels per day below the current supply. This resulted to an excess supply of oil in some markets. This over-supply might still increase as the international sanctions on Iranian exports are reduced.
The demand for oil, on the other hand, is decreasing as the economic activities in many major areas worldwide have slowed down. In fact, the economic growth has slowed down in 19 nations that utilize the euro from July to September.