The fall in oil prices - 2014

Oil

Researched and written by Aamir Sheikh ACCA Affiliate & BSc in Applied Accounting (Oxford
Brookes University)
Works at Ernst & Young Ford Rhodes Sidat Hyder

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The fall in oil prices 2014 (Written by Aamir Sheikh)

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Determination of oil prices in the world

Like any commodity, oil prices in the world are
determined by the demand and supply of it. The point
where demand and supply intersects, the price of oil is
determined.
Price
Supply

Demand

Quantity

Glance at the movement in oil prices during

2008 -2014
In mid of 2008, oil prices touched around $145
per barrel. After the lifting of ban on oil drilling
by George Bush, president of United States of
America, the upward pressure in the oil prices
slowed down and started moving in the reverse

Do you know?
1 oil barrel =
158.98 litres /
42 US gallons

direction. As a result, at the end the year, the prices of oil

fell down to $ 32 per barrel.
From 2009 till 2011, oil prices moved up from $ 32 per
barrel but remained below $ 100. In 2012, the oil prices
again built up pressure gradually, started moving in
upwards direction and crossed $ 100. From that point of
time the fluctuation in oil prices remained till mid 2014.
According to The Economist, the oil price has fallen by
more than 40% since June 2014, when it was $115 a
barrel and it is now below $651.

2
Chart 1: Crude oil price

th

As on 12 December 2014
Infomine (2014), One year crude oil price and price charts,*Online+, Retrieved from:
http://www.infomine.com/investment/metal-prices/crude-oil/1-year/ [Accessed on 13 December 2014]
2

Reasons behind the fall in oil prices around the

globe
Fall in oil demand around the globe due to low
economic activity.
Oil substitutes are leading ahead, means due to
more focus and use of alternative fuels such as solar
power, etc. oil demand is moving in downward
direction.
The IEA cut its forecast for global oil demand growth
next year by 230,000 barrels per day to 900,000
barrels per day on the expectation of lower fuel
consumption in Russia and other oil-exporting
countries. BBC News
Moreover, low economic activity in China and
European countries has also pushed the oil price in
the downward direction.
Normally, when demand is falling and at the same
time supply of a commodity is increasing, the price
always decreases, so is the case with oil.

Oil prices have been in steep decline since June due

to slow demand growth and a US shale oil boom
which has increased supply. BBC News
The United States is now one of the largest oil
producers in the world.
It simply means more supply of oil in the world,
though it does not export it. It has created excess
supply of oil.
The U.S. will remain the worlds biggest oil producer
this year after overtaking Saudi Arabia and Russia as
extraction of energy from shale rock spurs the nations
economic recovery, Bank of America Corp. said.
Bloomberg

Saudi Arabia
has $ 900
million worth
oil reserves.

USA is in the
list of world
top oil
producers.

 Saudi Arabia is not ready to cut oil production and

support oil price in the international market.
"The market has perceived some signals from Saudi
Arabia that they are not intending to cut production
to support prices," says Jason Bordoff, of the Center
on Global Energy Policy at Columbia University. BBC
News
Uncertainty in Iraq and Libya has not affected the oil
production in the region. Oil is flowing from
everywhere.
Turmoil in Iraq and Libyatwo big oil producers with
nearly 4m barrels a day combinedhas not affected
their output - The Economist
In a nutshell, demand of oil is falling and major
producers of oil are not cutting the required
production of oil, as a result, the oil prices around the
globe are falling. It is expected that oil price will
remain low in 2015 due to weaker demand.

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Email at: aamirsheikhpk@gmail.com

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