Crude Oil Prices after years of stability fell from $115 Per Barrel in June 2014 to $48.79 in January 2015. Prices continued to fall to record low level of $28.94 Per Barrel in January 2016. Organization of the Petroleum Exporting Countries (OPEC) failed to curtail oil production and maintain oil prices resulting in shock waves to the Crude Oil global market. So why is the crude oil price falling?
5 major factors follow:
1. Declining Consumption
The economic growth has slowed down for many growing economies including China, japan and Europe. This has added a downward pressure to the Oil Prices by suppressing demand. Moreover, US has historically been a major importer of Crude Oil, the falling import demand due to Shale Revolution (Read: Shale Revolution) has decreased global demand for one of most significant energy resource.
2. Increasing Supply of Crude Oil
Oil inventories have risen more than the projections in the recent years, which represents increasing supply whereas the demand has steadily declined. The US Crude Oil inventories are at their highest levels. The high inventory level implies weak demand and a bearish market causing downward pressure on the Crude Oil Prices.
3. Iran Nuclear Deal
In July 2015, an agreement was formed between Iran and other countries (United States, Russia, China, France and Great Britain) to redesign and reduce Iran’s nuclear facility in exchange for easing sanctions imposed since 1995. Iran with world’s fourth largest Oil reserve has increased the global supply of crude oil reducing the oil prices.
4. Strengthening US Dollar
The relationship between Crude Oil Prices and USD had been quite consistent and predictable over the years, when the USD strengthens, Crude Oil Prices fall and vice versa. (Read: USD and Crude Oil Price Relationship) The strengthening US economy over the years is analyzed to be a major contributor to the falling crude oil prices.
5. Organization of the Petroleum Exporting Countries (OPEC)
OPEC, a permanent inter-governmental organization formed since 1960 aiming to stabilize oil prices and production. A number of members in the cartel of oil producing countries refused to curb oil production in order to boost oil prices including United Arab Emirates, Saudi Arabia and other Gulf countries. To increase global oil prices it is critical for UPEC to cut down on its production levels.
