The price of oil has dropped nearly 40% in six months and nobody can pin down exactly why that is. And it’s got a lot of countries feeling nervous.
The biggest cause of that shift? The corresponding collapse in oil prices over the last few months.
Ismail Zitouny / Via Reuters
Since June, the price of crude oil has gone from around $115 per barrel to less than $60 USD as of Monday morning.
Via nasdaq.com
Demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels.
Second, turmoil in Iraq and Libya — two big oil producers with nearly 4m barrels a day combined — has not affected their output. The market is more sanguine about geopolitical risk.
Thirdly, America has become the world's largest oil producer. Though it does not export crude oil, it now imports much less, creating a lot of spare supply.
Finally, the Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb production sharply, but the main benefits would go to countries they detest such as Iran and Russia. Saudi Arabia can tolerate lower oil prices quite easily. It has $900 billion in reserves. Its own oil costs very little (around $5-6 per barrel) to get out of the ground.
Via economist.com
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