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Brent Crude Oil - Essay Example

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Thus, trend has been driven by the constant fears of the surging US currency and aspects and probabilities of oversupply of the product. The possibility of the United States to sign a…
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Brent Crude Oil
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THE REASONS FOR THE DROP OF PRICE OF CRUDE OIL AND THE EXPECTATIONS al Affiliate) The reasons for the drop of price of crude oil and the expectations
The price of crude oil has trended bellow 90 dollars a barrel for a continuous six years. Thus, trend has been driven by the constant fears of the surging US currency and aspects and probabilities of oversupply of the product. The possibility of the United States to sign a nuclear deal with Tehran paves way for the already oversupplied oil market to receive more oil imports from Iran. The oil price trend was higher compared to the range it had registered in the months between June and January. Its current price stands at $43 a barrel and it continues to be as low as $42.85. There exist specific factors that cause this sharp decline in the oil price (Menton, 2015).
The strength of the American dollar is a key driver for the steady decline of the 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 majority of the commodities fall. This has greatly affected crude oil, whose price has been constantly declining. With global prices of commodities quoted in reference to the dollar, the prices trend lower in the economic times where 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).
My speculations are 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 time span. 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).
References
Menton, J., 2015. Why Are Oil Prices Falling? Here are Four Reasons Crude Prices Continue To Trend Lower. [Online]
Available at: http://www.ibtimes.com/why-are-oil-prices-falling-here-are-four-reasons-crude-prices-continue-to-trend-lower-1848742
[Accessed 16 March 2015]. Read More
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