The oil price on a rollercoaster

The oil price on a rollercoaster

These last months have been a steep downward ride for oil prices accompanied with both euphoric and panic reactions. Many creative theories are circulating, each of them adding a little more geopolitical plotting to the previous one. However, the reason behind this fall can mainly be explained with simple supply and demand economics. The article is published in Dutch by ‘Knack‘ and ‘KU Leuven blogt’. Increased energy efficiency combined with slowing global economic growth and growth of alternative energy sources have tempered global demand of oil. The International Energy Agency (IEA) had to cut its growth forecast of worldwide consumption to 0.9 mb/d* in 2015, resulting in a total demand of 93.3 mb/d [1]. On the supply side however, production has grown substantially mainly due to America’s shale oil boom, rapidly transforming it from an importer country to a self sustaining superpower. The share of America’s shale industry in the international oil market has indeed increased with 2.2%-pts between 2008 and today, which is no surprise since e.g. last year shale accounted for at least 20% of worldwide oil production investments [2]. Combined with the unwillingness of the Organization of the Petroleum Exporting Countries (OPEC), a group of oil producers responsible for 40% of the world supply, to stabilize oil markets by cutting production, with growing production in Iraq and with relatively steady production in Russia, this resulted in a serious oil oversupply triggering a plunge of the price which has been cut in half since June 2014, reaching levels comparable to the 2009 recession.   However, disagreement reigns in the OPEC. On one side, several members like Iran,...