Why the price of crude oil is falling

Posted by Chidinma on Monday January 19, 2015 at 15:36:11:

Late last year, just before the Christmas period, the price of crude oil in the international market fail to its lowest minimum in history and the price keeps failing as the day goes by. In fact, within a period of less than three months, crude oil price took a sharp drop from over a hundred dollars per barrel to less than sixty dollars. This situation has affected some countries economy especially countries like Nigeria that depend solely on crude oil from their main source of national income and the worst part of it is that, economist are still predicting that crude oil price will fall to as low as thirty dollars before it will make a reversal to its normal prize of over seventy dollars per barrel. The question now is ‘why is the crude oil prize falling? What exactly is the reason that brought about this hideous fall in crude oil prize?

1: Excess supply: Right now, there happens to be excess supply of oil in the market than what is demanded. Right now there is excess supply of crude oil in the international market and due to the fact that the number of buyers or demand is lower than supply, the price of crude oil has taken a dive down to its lowest. As long as supply supersedes demand, this will continue to be the case. Some oil producing countries have practically increased their productivity causing an excess supply of the commodity in the market.

2. America’s increased shale oil Production: In addition to the increasing crude oil supply from exporting countries mentioned above, another reason why the price of crude oil is low is because the USA that was once the major buyer in the crude oil market has not only stopped buying but has also started producing oil for supply in the international market. This is as a result of newer technologies that is making US's shale oil more affordable to tap rather than importing oil. This has brought down the price of oil considerably in the market and OPEC can hardly do anything about it.

3. Slowing economic growth in China: China is also a major energy consumer and oil is one of their major imports. As a result of their slowing economy which was onces growing fast, they now have less demand for crude oil and so together with the USA, they have helped bring down the price of oil.