Oil Prices Continue to Fall

Oil prices sink 15% in 3 Weeks

On Thursday, oil prices dropped to their 5 month low. The prices have fallen amidst fear of an oil glut, which happened only recently in late 2015 and early 2016, supply glut brought the oil prices crumbling down. Prices have been at their lowest level since 29th November last year, the day before OPEC decided to end supply glut by agreeing on production cuts. Today, five months forward, the troubles are far from over. The prices for oil dropped 5% yesterday, falling 15% from their peak in mid-April to 45.52$/barrel, dragging energy stocks like ExxonMobil (XOM) further into red.

The OPEC agreement to cut production last year sent oil prices soaring, but that effect seems to have evaporated. The main cause behind this has been America’s rise in becoming one of the leading energy producers around the world within a span of decade. The substantial discoveries especially in areas like Bakken fields of North Dakota and the doubling of oil rigs last year have sustained the glut. With increases American Shale output and a decrease in American gasoline demand, the prices have been on the fall. These new discoveries in the past decade have brought Americas into stratum of biggest energy suppliers in the world, changing the energy landscape dramatically.

Adding to the industry’s worries are fuel efficient cars, with car owners shifting from gasoline fueled cars towards hybrid cars has led to a decrease in demand for gasoline products.
Skeptics last year anticipated that OPEC members’ commitment towards cuts would falter after the agreement, but the members all have shown continuous resilience. With Russia just reaching its target cuts last weeks, other members have also decreased their production to the agreed cuts. However, the effect expected from cuts has been negated by more pumping form Libya and Nigeria, two nations exempted from the agreement. The production there has been increasing at a frenzied pace.

With OPEC meeting scheduled to occur in Vienna on 25th of May, OPEC has a lot on the table to worry about. With experts anticipating a stretch in the agreement for six month or moving it further into 2018.

Posted on: 2017-05-05T10:15:00+05:00