An already weak oil market saw prices drop by nearly 5% on December 10. This tumble caused the price of oil to drop to around $60, the lowest it’s been in five years. More recently, however, it is hovering around $47 (http://www.bloomberg.com/energy/). There are several reasons for the drop (see previous article) but there are two main factors – the increase in the U.S. reserves and the fact that OPEC decided that they would not reduce their oil output. This adds to the world supply and the demand simply is not there right now to cause the prices to balance or rise.
Countries and oil producers all around the world are starting to take hits. Brent Oil has seen their prices drop nearly 50% after having reached $115 a barrel in June 2014. Experts feel that there could be more losses for a number of producers if the price per barrel were to drop below $60. They had hoped that it would stay around the $70 mark, but the most recent dips proved them wrong.
Despite these new drops, Ali al-Naimi, the Saudi Oil Minister, reiterated that he would not cut production. Rather, the market would have to sort itself out. He said that the current output would not change “unless other customers come and say they want more.” Other members of OPEC do not necessarily have the same outlook. Both Venezuela and Algeria feel that there will be an emergency meeting before their scheduled meeting in June. They also feel that the focus of that additional meeting will be to figure out what they need to do in order to increase prices again.
It’s still unclear what will happen with the price of oil over the course of the next year. The actions that OPEC, and countries such as the US and Canada take, or neglect to take, now will make the difference. However, from what the experts are saying, it seems as though it’s impossible for anyone to agree what the best and most sensible course of action will be.
With the demand as weak as it currently is, continuing to pump out large quantities of oil daily does not make much sense. OPEC’s stance on this could well be a way of showing their disdain at the increased output from the United States for the country’s domestic uses. One thing is certain. While it may appear that the first few months of 2015 will look rather bleak for many oil producers, including those in the US, some forecast that the oil prices may stabilize at between $55-$65 in 2015. In fact, Saudi Arabia is basing its recent budget on the basis of oil at $60. According to the short-term outlook published by the EIA (US Energy Information Administration), oil prices are projected to rise to the mid-70’s by 2016.
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