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THE GLOBAL ECONOMY - Assignment Example

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The fall in oil prices cannot be attributed to one single cause; various factors must be taken into account in order to explain the radical tumbling down of global oil prices in the past seven months. Oil prices are believed to have fallen by “40% since June, when it was $115…
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THE GLOBAL ECONOMY
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Download file to see previous pages PEC and shale oil producers, end of Quantitative Easing (QE) in the US economy which led to the rise in the dollar value and subsequent fall in the oil prices.
Oil prices fall when the world produces more oil than it is able to consume in which case there is a production surplus. Vice versa, a production deficit comes about when the demand for oil is greater than the amount of oil that is being manufactured. However, oil prices have plummeted to half of what they used to be since June. Crude oil has now dipped below $50 a barrel for the first time since May 2009 and US crude has also fallen below $50 a barrel” (2015). In the last decade, oil prices were high because of the rising demand for oil in most of the world but this growing demand could not be met and supply remained low due to conflicts in the oil producing Middle Eastern region, for example Iraq.
By 2014, oil production increased exponentially and due to surplus oil being produced, the price of oil fell dramatically. This was caused by a significant increase in US oil production. Because of soaring oil prices, multiple American and Canadian companies started drilling for “new, hard-to-extract crude in North Dakotas shale formations and Albertas oil sands” and advanced methods like fracking and horizontal drilling began to be used (Plumer, 2015. The introduction of American shale oil in the market has added “4 million new barrels of crude oil per day” (Plumer, 2015) to the oil market while the global production is “75 million barrels per day” (Plumer, 2015).
Iraq emerged as one of the major contributors to the recent boom in oil production. After the US led invasion of Iraq, oil production was disrupted due to constant war, turmoil and sanctions. However, since 2008 due to efforts being made to bring about stability and curb violence, we have seen a boom in Iraqi oil production. “Over the next five to seven years, Iraq could be supplying nearly half of the incremental growth in world oil ...Download file to see next pagesRead More
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