(Newswire.net — December 21, 2014) — Analysts agree oil is more than just a fuel, it’s a force even bigger than its $3.4 trillion market. It’s a weapon, a strategic asset, and to some countries – a curse. It is like ‘Tolkien’s Ring of Power’ that possess ultimate might, but no person nor country has the strength to control it unilaterally, it consumes the soul, bends reality, corrupts mind and invokes aggression. Whoever tries to control such power and dominates, soon realizes the ultimate price of becoming the ‘Sauron’ of the modern world.
There are various reasons and theories why OPEC initiated oil price war, however, one thing is certain – countries that are highly oil-dependent do not have time to wait and discover on their own. Many of them also do not have a choice.
The observation that the easiest-to-reach oil had already been pumped gave rise to the ‘Peak Oil’ theory, which states that once the world oil production reaches its maximum output, a steady and inevitable decline in oil production will follow, causing the prices of oil to soar.
So why the oil price drop then? The most likely answer is because OPEC is pumping more oil into global market, but the bigger question is why?
In the US, the total number of places where oil is produced, including oil wells and shale oil fields, went from just 205 in 2009 to 1,115 just three years later. By 2014 that number went up to 1,605, which represents 800% increase within a span of just five years.
Since the US is among the largest importers, the decreased reliance for foreign oil noticeably impacted the OPEC sales. So it stands to reason that the only course of action OPEC had was to lower the prices of crude by flooding the market long enough to make the shale oil extraction not economically viable.
Experts say we are still in transition – recalling a significant fall in crude price in late 1990’s (down to $19), the fundamental effects of this change on global supply and demand should take more time to crystallize.
It’s interesting to note though, that the commodity traders had the best time in years while regulators are yet to start exploring some of traders’ roles. It somehow slipped under their radar that many of commodity traders are Swiss, so it remains to be seen what will happen when US and UK regulators start looking into them.
Meanwhile, the OPEC’s Arab members are using their power to rock the global economy. Experts estimate some OPEC countries, such as Venezuela and Iran, would suffer more than others. Those countries are expected to continue to pressure OPEC to revise their decision from November not to cut oil production.
Meanwhile, financial experts agree that maintaining low oil prices in 2015 would increase deflationary pressure on Euro and USD. Russia will suffer deeply, however, more due to sanctions than to oil prices – which seem to be the lowest since 2009.
According to Bloomberg, today’s international benchmark is Brent crude from the North Sea, which has the advantage of political stability but lately is contending with declining output that makes the trading sparse.