Global Oil Prices - Low Oil Prices and Stiff Competition Causes of Anxiety for Graduates
Expectations of continued USD 100/bbl of oil were shattered by a sharp price drop last year that eventually halved the prices of benchmark crudes. Prices were still sinking at the start of the year to lows not seen since 2009 due to a global oversupply of oil.
The US has gone from the world’s best import market for oil to a market moving producer, and a large and growing exporter of refined products. Total US output rose from 5 million B/D in 2008 to 9.2 million B/D in December, according to the US Energy Information Administration (EIA), which predicts 9.3 million B/D by the end of this year.
While the magnitude of the drop rivals the one in 2009, the cause of it resembles the longer-lasting downturn that began in the 1980s, after a run of high prices rapidly expanded oil supplies, creating a glut.
The rise of oil flowing from US shale formations has sparked a battle for control of the market with OPEC, which has been unwilling to reduce its production to prop up prices because that would further erode its share of a market where production outside OPEC rose by 2 million B/D in 2014, according to the EIA, which said demand was up by 900,000 B/D.
OPEC’s goal is to ultimately reduce production by forcing output reductions by what Saudi Arabian Minister of Petroleum and Mineral Resources Ali al-Naimi has described as “inefficient producers.”
The strategy, which allowed the price of a barrel of oil to drop to less than USD 50 early this year, appears aimed at the independent companies producing millions of barrels a day from tight, unconventional formations, where the cost of extracting oil is far more expensive than Saudi Arabia’s world-class reservoirs.
So far the news suggests this could be a slow-moving process. The large, public US producers have announced significant reductions in planned exploration and production (E&P) budgets, but still predict greater production in the year ahead.
