Oil prices collapsed on January 5, 2015, with New York crude breaching the $ 50 mark for the first time since spring 2009. Falls in the international oil market during 2014 pushed prices from $ 115 a barrel to under $ 50 at the beginning of 2015. On January 5, 2015,, the oil selloff resumed on both sides of the Atlantic, as concerns about stock surplus and demand weakness weighed on crude markets.
Oil prices were about $ 104 per barrel at the start of 2014. Despite oil oversupply, the continuing dramatic plunge in prices does not match the market realities. Crude has lost nearly half its value since June because of a global supply glut, as well as slowing growth in China and emerging market economies, a recession in Japan and a near stall in the Eurozone. Russia’s oil output reached its highest level since the collapse of the Soviet Union, while Saudi Arabia, Iraq, Venezuela and the US are pumping more crude. The daily volume of oil output is two million barrels, which is above demand.
Experts believe that political reasons and the connivance of major oil producers are behind the recent oil price decline. Middle Eastern strategists believe that the US, Saudi Arabia and their allies are using oil as a weapon against Iran and Russia to maintain their Eastern European and Middle Eastern interests. However, the other view about this oil abundance is that major oil exporters such as Saudi Arabia and Iran, although archrivals, are cooperating in the oil market and are unwilling to reduce their output. They are already harming their own interests to drive other rivals out of the market. Saudi Arabia is giving big discounts to customers, despite its addiction to oil revenues. Apparently, their target is the shale oil industry as oil companies active in shale oil production have reduced investment after the current oil glut.
Apart from Middle Eastern politics, the US and Russia, the two major powers, are trying to secure their interests in Eastern Europe by reducing their oil production. The US’s oil production does not correspond to its domestic consumption. Washington is still not self-sufficient in crude production. The US needs 19 million barrels of oil daily, over half of which is supplied by imports. However, a surge in shale oil production has reduced the need for crude imports. As a result, Washington was able to achieve its long-term strategy of cutting oil imports to less than 50 percent and exporting its ‘black gold’. Interestingly, the US increased production and initiated exports to Eastern Europe for the first time after 40 years.
Moreover, experts are of the view that increased use of renewable energy resources in vehicles has had an impact on oil prices. In the past few years, studies have focused on renewable energies that also pose a threat to fossil fuels such as gasoline. New cars in the market are working without fossil fuels and automakers are supplying the market with green vehicles on a large scale. These cars can move hundreds of kilometres with a single charge. Indeed, new technologies will meet more than 90 percent of market demand in the next decade, a survey has suggested. This indicates that demand for fossil fuel in developed countries will decline. Therefore, oil producers have decided to take appropriate measures to maintain their market interest.
Major oil exporters do not consider themselves responsible for the price decline. The collapse in crude prices has benefited US households and has helped in promoting US economic growth. The US has secured strategic, economic as well as political interests through this oil glut. However, Canada, its neighbour and ally, has remained a victim in this whole game. The Canadian oil industry has been affected by this oil glut suggesting that this glut will not remain for longer than a few months. Though major oil exporters are hurting themselves to harm market rivals, this political game with oil will not continue forever.
The writer is a freelance columnist