The last year has been an exciting one for oil, to say the least. Starting the year in the high $90s a barrel, today it sits at 66$. There have been many factors that have tied into this story – here is some of the highlights.
US Shale Production is booming, through a combination of horizontal drilling and hydraulic fracturing. Production increased to 9.08 million barrels a day through Nov. 28. Weak Chinese trade data did not help matters.
“Notwithstanding day-to-day movements, the fundamental picture hasn’t really changed, and that is one of supply outstripping demand growth for most of the year,” said Phin Ziebell (senior analyst at National Australia Bank).
As Russian sanctions rev up, Washington has banned imports of high technology oil equipment to Russia and imposed sanctions on Russian oil majors. This has stopped Western firms from supporting exploration and production of shale oil reserves in the Arctic. Russia is the second largest oil exporter, with production hovering around 10.5 million barrels per day. Russia is depending on the development of new reserves to maintain it’s current output.
To make matters worst, a recent report from Morgan Stanley suggests that Brent crude, an international standard, could hit as low as $43 a barrel.
Saudi Arabia, Top producer of oil in the Middle East, blocked OPEC output cut. This shift represents a major shift in the groups policies, and essentially means a battle for market share between OPEC and non-OPEC countries.
OPEC forecast that demand for its oil would drop to 28.9 million barrels a day next year, compared with 29.4 million barrels a day in 2014, the lowest amount in 12 years! Some suggest that recent shifts in OPEC have effectively killed the group.
“The U.S. is producing in a very, very bad manner. Shale oil, I mean it is a disaster from the point of view of climate change and the environment,” Foreign Minister Ramirez, who represents Venezuela at OPEC, said.
Yet as oil prices continue to show weakness, several countries such as India, Indonesia and Turkey stand to gain through leverage of their deficits.