Fall in Oil Prices
Write an Introduction, History and Summary on the recent drop in Oil Prices?
Answer:
Introduction
In US and Europe, the price of oil was stable to 2014 from consecutive 2010 because the higher authority of these countries gave permission to the Iranian oil sale to restrain nuclear program of Tehran. The trading price of oil was $110/ barrel, but the situation did not last many days. The crude oil price had reduced to $30/ in this week. The causes behind this fall can be said in two ways: low demand in some countries due to weak economic growths and growing production of US (BBCNews, 2016).
History
In the post-World war period, the prices of Crude oil had ranged from $2.50 to $3 in between 1948 to 1960. After this time period, the price of crude oil was varied between of $14 to $16 in 1996 and this had brought inflation in the global economy. Although oil price was steady to 1970 from 1958 but, in reality, crude oil price had faced a sharp decrease from $15 to $12 for each barrel. This downfall had adjusted due to inflation but had worsened again in 1972 due to US currency’s weakness. The exporting nations of OPEC had found a rising desire of crude oil throughout the period of post-world war 2. After setting the proration by Railroad Commission of Texas, OPEC had the power to control the price of crude oil (Ibrahimov, 2012).
Summary
The main reason will include the simple demand and supply analysis. From the last few years, the domestic production of US has increased largely which leads to lower the import rate. Thus, Saudi Arabia, Algeria, and Nigerian oil found a very competitive scenario in finding a new Asian market. So, the producers of oil have been forced to reduce the price of oil (Steffy, 2011).
However, the oil production is falling in the US due to low investment explorations; they were trying to manage the situation at a fast rate. From the demand side, the vehicles in European countries, as well as developing countries, became energy efficient. Thus, fuel demand has declined day by day.
The industry of oil always reached to boom but has seen a huge downturn after 2014. In recent times, the oil companies have seen a downtrend in their earnings. Employment opportunities have reduced due to this fall in price. Almost 250000 employees were sacked from their jobs and production equipment; manufacturing products have also faced a downfall (Bordoff, 2016).
Since the month of May 2009, the pump prices of US were below $2/ gallon and the households have saved $700 in average in costs of fuel. There was occurring an economic stimulation due to this extra money (KRAUSS, 2016). There was a positive side too. Due to this downfall, imports have decreased and low price of oil leads to the oil boom in US hearts (Wyoming, Texas etc.).
Conclusion
From the study, it can be said that there were fluctuations from the post-world war period. In 2010-2014, the oil price was steady, but it had faced a downfall due to various reasons. To manage the situation, the governing body can raise the fuel tax; modernize the strategic reserve for US Petroleum and can also do the subsidy reform (CHEN, 2014).
References
BBCNews,. (2016). Falling oil prices: Who are the winners and losers? - BBC News. Retrieved 28 January 2016, from https://www.bbc.com/news/business-29643612
Bordoff, J. (2016). Oil price plunge: Risks and rewards - CNN.com. CNN. Retrieved 28 January 2016, from https://edition.cnn.com/2016/01/14/opinions/bordoff-risks-and-rewards-oil-price-plunge/
CHEN, S. (2014). FORECASTING CRUDE OIL PRICE MOVEMENTS WITH OIL-SENSITIVE STOCKS. Economic Inquiry, 52(2), 830-844. https://dx.doi.org/10.1111/ecin.12053
Ibrahimov, M. (2012). Crude Oil Price Security: How Crude Oil Price is Formed?. IJEEEE. https://dx.doi.org/10.7763/ijeeee.2012.v2.142
KRAUSS, C. (2016). Oil Prices: What’s Behind the Drop? Simple Economics. Nytimes.com. Retrieved 28 January 2016, from https://www.nytimes.com/interactive/2016/business/energy-environment/oil-prices.html?_r=0
Steffy, L. (2011). Drowning in oil. New York: McGraw-Hill.
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