TRT World - World in Focus: Why are oil prices falling?

Tumbling oil prices It’s been a tough year for the global economy. Speculation about a possible rate hike by the US Federal Reserve created uncertainty in global markets. China, the world’s second largest economy, showed signs of a slowdown. And as currencies in emerging markets tumbled, so did oil prices. For 10 years prior to the downturn, oil had sold for between 90 and $100 a barrel. But in June of last year, the market started its latest downturn, reaching its lowest levels since the recession in 2009. Oil prices are now HALF of they used to be. Why are oil prices falling now? But why now? The answer is twofold: A glut caused by oil production, and lower demand due to the ailing global economy. Who benefits, who loses? From an individual standpoint, thanks to lower prices at the pump, households pay less for gas consumption all around the world. Plus, it helps oil importing countries to reduce their current account deficits. But, one person’s expenditure is another person’s income. So, declining prices hurt the economies of oil exporters. Saudi Arabia, Russia, Venezuela, Brazil and Nigeria are a few that have suffered economically. Especially Russia. On top of US and EU sanctions, falling oil prices have weakened the Russian ruble... And consumers there are feeling it. Lower prices also led oil companies to cut investments in exploration. And more than 200,000 oil workers around the world have lost their jobs. And then there’s the oil cartel OPEC, which has the mandate to “ensure the stabilisation of oil markets” and the “ability to intervene” directly in the pricing. [insert OPEC’s cool graph] But even after oil prices came down below fiscal break-even levels for many OPEC members, they refused to cut production. Although Venezuela has the biggest oil reserves among OPEC members, it doesn’t run the cartel. [insert graph: OPEC’s market share] Besides Venezuela, Iran and Algeria have tried to convince OPEC to cut production to stabilise prices. But the Saudis believe cutting production will cost them market share against the US and Russia. Even though low prices hurt Saudi Arabia’s economy, there are some who accuse Riyadh of trying to hurt Russia and Iran politically, by keeping prices low. After all, a sharp drop in oil prices in 1980s triggered the fall of the Soviet Union. Whether oil prices will stabilise any time soon is a hard question to answer in a volatile world market. According to International Energy Agency’s latest oil market report, global demand growth will slow next year. But the Saudi oil minister, Ali Al Naimi disagrees. Some analysts say that 80 dollars a barrel is the new fair price, but currently Brent crude is far below that, trading at between 45 and 50 dollars a barrel. And some think that it could take years before oil prices recover. Subscribe: https://www.youtube.com/channel/UC7fWeaHhqgM4Ry-RMpM2YYw?sub_confirmation=1 Livestream: https://www.youtube.com/watch?v=vvFQ5fVbGQg Facebook: https://www.facebook.com/TRTWorld Twitter: https://twitter.com/TRTWorld Visit our website: http://www.trtworld.com/