The perplexing plummet in oil prices over the past few months has gripped the investors that have brought about the questions with regard to crude as a safe haven status-crude prices was hovering around 105.47 dollar in 1st/June/2014 and now has plunged to 80.89 so far – and murmurs has become talk of the town in every corner of the world. Notwithstanding, significance of energy family-WTI crude, Brent crude, natural gas and others, cannot be underestimated as people use it for well-being. Energy consumption and prosperity moves ahead proportionately. Now, Member of energy family-crude- is facing downfall that has direct linkage with demand and supply.
So to say, initially, the rising price of oil was consumer driven that’s why stakeholder have been seeing the rising trend of oil demand and price for many years, but it seems as if market is turning little in favor of consumer as a result of slower global economic recovery, supply surge, strong dollar and Geo-Political factor as IEA ,International energy agency a Paris based organization, said in its statement that it is cutting global oil growth 300000bpd than its previous forecast and now project oil demand growth of 1.1 million bpd for 2015 while it cuts its projected forecast to 200000bpd to 0.7 million for 2014.
Even though, IEA has termed the slow global economic growth and the USA shale oil production as a main factor due to which oil prices are plummeting, yet most veterans considers the free-fall in oil price as a result of supply side imbalance. Now that, USA shale oil production has transformed the entire market and the USA is expected to emerge as the largest oil producer in 2015 due to shale while OPEC countries are reluctant to bring the supply down to counter marginal oil producers and want to maintain their share in international market, despite the price downfall.
In addition to this, OPEC crude oil surge to 12-month high in September from August to 30.66 million bpd resulting from recovery in Libya and flow from Iraq. GEO-Political factor –Iran and Syria – is also cause of this surge as Saudi does not want any sort of reduction in crude to give blow to its rivals. All of these factors have created slide in petroleum prices.
Although unexpected Supply surge has disturbed the price mechanism, yet economists have opinion that the plunging price of oil might be vexing for Oil producers , but it is better for Oil consumer as power is shifting towards oil consumers in a way because 10 dollars fall in crude is equal to 0.2 percent of world economic growth. So, this plunge would push the purchasing power up and consumer would tend to spend more for goods and services that may speed up the economic growth to 0.2 percent to 0.3 percent.
Author: Humair Rana