Reasons for drastic fall in Global Oil Prices

The global oil prices have always dismayed the oil-watchers and have left many economic analysts both perplexed and worried about the future of the commodity and its spiralling effect on others. The recent drop in prices has started to point towards the fall in economic health of the world..

Economic downturns

• The overall pattern of world economy is not upbeat, even though a major effect is not likely anywhere. This has considerably contributed to the lowered oil prices. Many large economies are under stress or facing growing domestic concerns.

New reserves

• The discovery of Shale Gas reserves in US has changed the way US looks at the world in terms of oil dependence. At the moment, the country not only imports less oil but has considerably augmented its production capability. It has emerged as the biggest oil producer in the world as it has a lot of surplus left even after satisfying domestic demand. This has hit the exports of former US suppliers and led to a heavy toll on oil prices.

Turmoil in Iraq and Libya

• These two nations are major oil producing economies of the world. The combined oil output of both Iraq and Libya is about 4 million barrels a day. Both the nations are facing high levels of internal disturbances and insurgency. The rise of ISIS has given shape to new geopolitical order in middle-east and reduced Iraq to a conflict-zone. Crisis in Libya, Syria, Israel-Palestine cause are also at their own highs. Many terrorist outfits have started to pay allegiance to ISIS which can turn the situation from bad to worse.

Saudi Arabia

• The country has massive deposits of oil with $900 billion in reserves. The country has stood firm in times when major economies have changed their import volumes and is not ready to cut production. It is mainly due to the fact that Arabian costs of production per barrel are very low (about $5-6 per barrel). This is a strategy to force Russia and Iran to share the cost of production. Thus, Saudi Arabia and its Gulf allies have decided not to part with their market share to help maintain the prices.