Lowering Oil Prices: Another Drop in The Growing Woe of a Global Recession
Oil prices have been falling and how. The recession in China, the second largest economy in the world, has meant the demand for crude has been low. On the other hand an increased supply of oil, particularly from Iran has meant crude prices have been steadily falling.
Observers had anticipated that the recent political stand-off between Saudi Arabia and Iran would lead to an increase in oil prices. It has however proved to have little or no impact on prices.
Iranian output of oil will keep the oversupply situation status quo, even if other oil producing countries intend to cut back on their production. According to The Week (UK Edition), Iran has 50 million barrels ready to be shipped.
The International Energy Agency (IEA) has some important findings to report at the beginning of 2016. India, China and Europe were the leading users of oil, averaging at 1.8 million barrel a day. It is expected to average 1.2 million barrels a day in 2016. IEA also reports that global inventories are expected to continue rising.
Take a look at the graph below. It shows the demand and supply trends as forecasted by IEA for Q1 of 2016.
Some of the key contributors to the slowdown in crude prices will include USA, Japan, France and Germany.
It would be worthwhile to take a look at crude oil current usage patterns among countries.
This mismatch between demand and supply has created huge problems for those involved with oil production. Reuters in its article on this deepening oil crisis had this to report.
Russia's largest private oil producer said on Wednesday it expects the country's output to drop for the first time in many years in 2016.
"Today, the oil industry is near a survival line ... Unfortunately we are cutting drilling," Lukoil's chief executive Vagit Alekperov said. A report said Canada's oil-sands producers were now losing money on every barrel, while U.S. shale producers were "burning cash" at current prices. U.S. commercial crude oil stocks were forecast to have risen by 3 million barrels last week, a Reuters survey taken ahead of weekly inventory data showed on Tuesday.
The incoming news of lowered growth rates in China, reduced industry output globally and a poor uptake of oil all point to a recessionary economic outlook in 2016. How the economies of the world are going to jumpstart themselves remains to be seen.