The Reasons for the Drop of Price of Crude Oil and the Expectations - Essay Example

There exist specific factors that cause the sharp decline in the oil price (Menton, 2015).
The strength of the American dollar is a key driver for the steady decline of oil prices. The current global market has been under tremendous competition with the United States dollar being a key determinant of majority of the things. With the strong US dollar, the average price and value of the majority of the commodities fall. This has greatly affected crude oil, whose price has been constantly declining. With global prices of commodities quoted about the dollar, the prices trend lower in economic times when the dollar is strong (Menton, 2015).

The U.S. currency surge experienced in the second quarter of 2014 saw a culminated decline in major leading product and commodity indices.
negative impact Of OPEC Oil output in the US due to oil prices registering low price sales by the end of the year would be another contributing factor. The marginal oil barrel output derived from unconventional sources like shale would be highly affected by the existing low global prices of crude oil. Drilling of oil wells has been on a steady decline based on the high costs incurred and the constant low prices registered in the global market making the industry unprofitable (Menton, 2015).

There is a global oversupply of crude oil. The supply has exceeded the demand of the product with its 2015 oil production speculated at 9.35 M barrels per day. It also goes into history that the existing oil reserves and repositories increased to the highest numbers ever registered since 80 years ago. The commercial inventories of crude oil in the United States rose by a margin of 4.5M barrels compared to the registered levels of the previous week (Menton, 2015). The figures make it the highest level of crude oil inventories registered in the year 2015.

The existing nuclear deal with Iran is viewed as a major element that soils the oil prices further down in the United States. The acceptability of the united states government to more Iranian oil exports foods the existing market with more oil products making investors panic. The current United States market is therefore flooded making oil prices become low (Menton, 2015).

I speculate that with the existing nuclear deal and the constant supply of oil products from Iran, the market prices of crude oil will continue to decline. The oil reservoirs are already stocked to capacity that can run the economy of the United States over a longer period. Moreover, the steady value of the US dollar will also make it impossible for oil investors to drill oil wells since they stand no chance to gain superfluous profits (Menton, 2015). Read More