Important Reasons why Oil Price Keep Falling Down

Oil Price Keep Falling

The biggest thing affecting the global economy at present is the low oil price. Oil price witnessing severe drop nowadays are sent shock waves to the world oil market. Oil production may drop off rapidly with low oil price. Oil will be left in the underground if the oil price is too low. High oil price encourages more oil production. What is the reason for falling oil price and what criteria indicate the decrease of oil price worldwide?

The oil price is partly determined by actual supply and demand. Nowadays The World is facing lower oil demand because of the weaker global economy. Demand is closely related to the global economic activity. Supply can also be affected by some factors like weather, geopolitical crisis etc. Turmoil in Iraq and Libya, the two biggest oil producers affect the oil price badly.

Improvements in technology and emergence of solar and nuclear energy sources affect current oil price. Countries like the United States use hydraulic fracturing technology to create shale oil fields result in more oil production at cheaper prices nowadays. The United States has become the largest oil producer in the world by creating a lot of spare supply is one of the main reasons for oil price drop. They do not start export crude oil, but they reduce import from other countries by increasing the shale production.

Plenty of supply and not enough demand for oil lead to lower the oil price. The OPEC countries have decided not to sacrifice their own market share by a cut in oil production to restore the price. They are not ready to slow production down because they know the main benefits would go to countries which they dislike intensely. When the price falls, cut the supply of oil will lead to a sudden turnaround in the world oil market that would increase oil demand.

Further posts will provide an analysis of the global economy.


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