As of December 16th oil has fallen below $59 a barrel. This mark is the first time the economy has seen this price since May of 2009. Since reaching a high of $115 per barrel in June, Bent crude has almost halved in roughly six months.
One of the factors that is bringing the cost down is simple supply and demand. Right now there is plenty of oil to go around in the market, but demand is slowing. OPEC (the Organization of the Petroleum Exporting Countries) has also switched up their strategy on exportation which is a contributing force as well. Their main goal is to defend their market share but as a result aren’t worrying as much about price and profits in order to maintain their position. When faced with falling prices, OPEC made the decision to not slow production and they appear to be committed to that course of action for now.
China, who consumes more oil than anyone in the world other than the United States, has also shown a slow in industrial activity. This activity has not decreased for the past seven months, so the sudden shift was expected to make an impact.
Currencies and economies in emerging markets have also been struggling lately. These markets are a consistent and large part of nationwide oil demand. The issues that these markets have been going through is making a large impact on pricing as well. Russia is on the brink of a possible economic collapse as the rouble falls, and since they are one of the largest producers of oil in the world this impact has been felt in the oil industry as well as many others.
The complex nature of the causes is concerning to some, but not to others. Some believe that because these issues won’t be solved in the short-term, the oil industry will be in a rough spot for some time ahead. Others are banking on oil to rebound the way it has in the past. The real question is how long will it take?