The price for a barrel of oil recently reached its lowest point since 2004. The decline started in June 2014, and has led to oil companies yielding significantly lower profits. This caused a notable scaling-down in the oil industry, with hundreds of thousands of workers unemployed and several companies going bankrupt (New York Times).
One explanation for this is that the competition for oil exporters has increased, causing producers to lower prices to stay competitive. Previously, Middle Eastern countries used to dominate the oil industry. However, Canada and Asian countries have started distributing oil, forcing the price down as well. Also, the demand is falling due to the increasing prevalence of electric cars and hybrids (New York Times).
Despite the fact that oil prices have been dropping for so long, some investors are still optimistic that the prices will rise once again when production catches up with the decreased demand. However, this is risky because the countries that are newer to the oil industry are showing few signs of scaling down and reducing production (The Week and New York Times).
I think that it will take quite some time for oil to start increasing in value again. Considering that there has been overproduction since 2014, I do not see it re balancing any time soon. Looking at the supply and demand graphs from the second NYT article, it seems that there has not been a production imbalance that has lasted this long since 2000. The fact that it is taking so long for production to start matching demand could cause bigger issues in the future. However, some people might consider this to be good news since it means that people are becoming less dependent on fossil fuels.
Do you think that oil prices will go back up any time soon? Why or why not?
What do you think would happen if supply continued to increase faster than demand?
In the past, production only exceeded consumption for short periods at a time. How come the industry has stayed like this for so long now?
Sources:
http://www.nytimes.com/interactive/2016/business/energy-environment/oil-prices.html
http://www.nytimes.com/interactive/2016/business/energy-environment/oil-price-supply-demand-imblance.html
http://www.theweek.co.uk/oil-price/60838/oil-price-why-the-market-is-completely-out-of-whack/page/0/1
