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Chris Pedersen

Chris Pedersen

Chris Pedersen is the Managing Director of U.S. Operations for Oak Leaf Energy Training Inc., an energy education firm with offices in Houston and Calgary.…

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5 Reasons Oil Prices Are Dropping

5 Reasons Oil Prices Are Dropping

As oil prices continue to fall, analysts and producers are trying to wrap their heads around the reasons and identify a floor price. Even though crude benchmarks like Brent and WTI keep dropping, the cost of finding oil continues to rise. What are some of the key drivers that have created this paradox?

1. The U.S. Oil Boom
America’s oil boom is well documented. Shale oil production has grown by roughly 4 million barrels per day (mbpd) since 2008. Imports from OPEC have been cut in half and for the first time in 30 years, the U.S. has stopped importing crude from Nigeria.  

Related: Dropping Oil Prices Send Shockwaves Through Energy Sector

2. Libya is Back
Because of internal strife, analysts have until recently assumed that Libya’s output would hover around 150,000-250,000 thousand barrels per day. It turns out that Libya has sorted out their disruptions much quicker than anticipated, producing 810,000 barrels per day in September. Libyan officials told the Wall Street Journal last week that they expect to produce a million barrels per day by the end of the month and 1.2 million barrels a day by early next year.

3. OPEC Infighting
There have been numerous reports about the discord between OPEC members, leading many to believe that OPEC will not be able to reign in production like it has done so in the past. The Saudis and Kuwaitis have reportedly been in an oil price war, repeatedly lowering their prices in order to maintain their market share in Asia. John Kingston, the news director at Platts, believes that the Saudis will not be willing to give up market share like they have done during previous price drops.

Related: LEGO Bows To Greenpeace Campaign, Breaks Ties With Shell

4. Negative European Economic Outlook
European Central Bank president Mario Draghi has left investors concerned about the continent’s slow growth. Germany’s exports were down 5.8 percent in August, stoking the fears of anxious investors that the EU’s largest economy had double dipped into recession last quarter. Across the Eurozone, the IMF again lowered its growth forecast to 0.8 percent in 2014 and 1.3 percent in 2015.

5. Tepid Asian Demand
Beyond slow economic growth and currency depreciation, a number of Asian countries have begun cutting energy subsidies, resulting in higher fuel costs despite a drop in global oil prices. In 2012, Asia’s top spenders on energy subsidies, as a percentage of GDP included: Indonesia 3 percent; Thailand 2.6 percent; Vietnam 2.5 percent, Malaysia 2.3 percent, and India 2.3 percent. India is a primary example. Between 2008-2012, India’s diesel demand grew between 6 percent and 11 percent annually. In January 2013, the country started cutting the subsidies of diesel. Since then, diesel consumption has plateaued.

By Chris Pedersen for Oilprice.com

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Leave a comment
  • Artem on October 14 2014 said:
    So there is no connection with Russia at all? And Iran is not worth mentioning?
  • David Hrivnak on October 15 2014 said:
    You forgot #6, electric vehicles. With more than 260,000 on the road in the USA that starts to translate to less gas needed. I calculate I am now saving $225/month in fuel costs.
  • faraday on November 06 2014 said:
    its obviously because of fracking for the most part, aka shale gas.
  • Koy on November 19 2014 said:
    The main reason why oil prices are dropping is to cut the demand for natural gas which is Russia's main export as well as oil from Syria and Iran. This is what happened during the 80's when the US and Saudi Arabia manipulated the oil price to weaken Iraq, a Soviet ally which then lead to the fall of the Soviet Union. Why is this happening right now? Because the US dollar is losing its value. Debt is almost $18 trillion, the American economy is headed for a collapse, countries like Russia and China are starting to dump the US dollar. This is why there is so much demonizing going on against Russia, China, Iran, Syria (ISIS being another excuse to throw down the Assad government). So basically, this is just Cold War 2.0
  • psi2u2 on November 19 2014 said:
    6) LENR

    (electric vehicles would be 7th on my list, well below LENR, which is the genie that's been let out of the bottle).
  • Mazha Mahmood on November 30 2014 said:
    There are two other reasons of fall in oil prices those should be given weight:

    1) Efficient hybrid vehicles and other technical advancement in automobiles that increased the efficiency from 20 miles/ gallon to 26 miles/ gallon. Hence reduced 30% consumption.

    2) Most of vehicles and industry has been shifted on gas which is near substitute of petroleum products.
  • Mahendra on December 06 2014 said:
    The main reason for price reduction of oil because, america increased the production of shale gas and reduced the consumption of crude oil. please google it about' SHALE GAS'.
  • michals on December 08 2014 said:
    For me first reason is Russia?
    Russia give asylum to Snowden.
    USA support the revolution against (Russian friendly) Ukrain prime minister Yanukovits
    USA supports and give weapons to revolution against Syria prime minister Bashar Al Ashand. Since this is also Russian friendly prime minister and bougth weapons only from Russia.

    USA government is responsible for the two wars that cost thousand of lives and now try to hit oil prices to strike Russian Economy.
  • Sohail sarwar khan on December 08 2014 said:
    Believe it or not the reason is dajjal factor. The world will witness mass changes in the decade to come. Changes like all sort of machinery will stop working and many more changes.we are heading towards this day by day.
  • tom on December 18 2014 said:
    what a shame in the slump in oil price just as renewable sources and electric cars were finally getting some traction now this will set them back 10 years role on global warming ,,
  • Derrickhand on January 03 2015 said:
    It's all about keeping cost from skyrocketing and control. Key players will survive as always and the small ones will go belly up and then the cycle will repeat as always.
  • JIm on January 10 2015 said:
    If the American government decides to incrementally decrease its debt wouldn't the decrease in the price of gas strengthen the American Economy?
  • Expatriatesky on January 13 2015 said:
    Do US-sponsored "transitional governments" or "rebels" sell resources like oil and gas? Cheap?

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