The Oil Market and the Changes in Prices.Discuss

The Oil Market and the Changes in Prices
The oil market has been a market whose prices have been unstable. However, one trend that the market has witnessed is the continuous fall in the prices of the oil-commodity. The International Energy Agency report for 2014 indicates that the current market-prices for oil a barrel of oil is $80 (IEA, p.1). The global oil market continues experiencing the dropping prices of oil. In 2008, the oil-prices were at their peak. A barrel of crude oil sold at $120, and there were global fears that the price would rise to $200. There are several factors that explain the dropping prices of oil. The end of the global financial crisis of 2008 has been a major factor behind the drop in the prices of the commodity. During the crisis, the price of oil reached the highest point in the history of oil trade. Furthermore, there has been an increase in the supply of oil, especially from the OPEC countries, a factor that has diluted the prices of the commodity. Currency valuation, especially the strengthening of the US dollar against the OPEC oil-producing countries has also led the fall of the prices of the commodity.
The current prices of oil are low, and there predictions that they will continue falling. The oil rich countries are facing great surpluses in their production. IEA (1) states that, “OECD oil industry stocks built counter-seasonally 12.6mb in September of 2014.” It marks a surplus in the amount of oil that the OECD oil industry produced in 2014. The increase in surplus came at a time when the season for oil-sales was turning low. It means that the market faces a situation whereby there are surplus stocks of oil with low demand. For the first in 2014, since 2013, the surpluses in the production of oil swung to averagely high levels, and this happened despite the preliminary data that indicated a 4.2 mb draw. In addition, the globe continues experiencing a drop in the demand for crude oil. “Global refinery crude oil demand hit a seasonal low in October amid peak plant maintenance and seasonally weak product.”
IEA reports that the downward trend of the oil-prices shall continue. IEA also reports that the peak of oil prices in 2014 was in June, and from then, the prices of oil have continued dropping by a high of 30%. The weakening demand of oil compounds with the appreciating value of the USD against the currencies of the oil-producing countries. In June, the ICE Brent exchanged at the rate of 75.4 per USD. However, the exchanged rates increased to 78.5 per USD, indicating that the USD gains strength against the ICE Brent, and this is a factor that also explains the dropping prices of oil (IEA 1).
Historical issues can also explain the sources of the drop of oil prices. In 2008, there was the global financial crisis. The crisis caused a surge in the prices of oil. Oil reached a historic high of $120 per barrel during the crisis. Bailey, in a 2008 report about the oil prices, reported that, “Oil prices have climbed to their highest level ever, flirting at $120 per barrel,” (p.1). Bailey (1) also refers to a report that Goldman Sachs released in 2008. The report indicated that the prices of oil would increase to $200 because of the global financial crisis. Since the end of the global financial crisis, the prices of the commodity have continued facing the downward trend. The end of the global financial crisis, and the continuous recovery that the global nations continue to face since the end of the crisis, are factor that also account for the downward trend of the prices.
In the past also, the supply of oil has been a factor that has always determined its prices. Currently, the supply of oil remains high. The demand decreases as countries continue turning to cheaper sources of energy. Supply of oil was a major determinant of the falling trend in the prices. Austin (1) reports that in June, the Brent oil prices were $115 per barrel. By the beginning of October 2014, however, there was a surge in supply from the OPEC countries and the surge in supply dropped the prices of oil to $95 and finally, at the end of October, a barrel of crude oil closed at $80.
Political factors also explain the high prices of the commodity in June (2014). The Islamic group called IS wanted to disrupt the supply of oil in Iraq. USA has tried to respond to the external pressures that have kept oil prices high. The country tries to create it reliable sources of energy so that its economy is less affected if there are external threats to the supply of oil. The country has turned to hydraulic fracking, a cheaper and reliable alternative energy-source. Such alternatives have created a low demand from the country that has been the largest consumer of global oil since 2005 (Austin 1).
The response that the Arab countries have given to USA’s strategies to reduce dependency on oil also explain the falling prices. In a bid to increase the demand of the commodity from the major consumer, especially USA, Saudi Arabia reduced the price of its oil. Armsdof (1) states that, “After the three-and-a-half months of slow decline, that’s when Saudi Arabia cut prices for its biggest customers. The move signaled that the world’s largest oil exporter would rather protect its market share than prop up prices.” It means that the market for oil is becoming highly volatile as the major consumers create alternative sources of energy. Armsdof also explains the surge of oil production, stating that, “Libya’s oil production tripled since June to 900,000 barrels a day,” (Armsdof 1). Gail (1) explains that between 2005 and 2008, supply was the critical factor that increased the oil-prices, and it is the factor that has dropped the prices in 2014. Egan states that today, USA and the rest of the world do not face oil shortages as the situation was in 2008 (Egan 1).
Casselman (1) argues that Fracking, which is the technique that USA has turned to in its oil production, has become the game-changer of the prices of oil. It has changed nature of supply and demand from what it was before. Today, USA generates much of its oil from hydraulic fracking, which means that its demand of oil from the OPEC countries and other global producers has fallen. Oil prices within the US economy have fallen from over $100 a barrel to around $82 a barrel because fracking, according to Casselman 1).
In conclusion, the current low prices of oil have been a result of several factors in the market of oil. In June 2014, the price of crude oil was at a high of $115 per barrel. However, the price has fallen to $82 per barrel by the end of October 2014. USA has become less dependent on imported oil because of fracking. The oil-producing countries are also facing an increase in their output. In June, the political instability in Iran, caused by the IS Islamist movement, caused the panic that led to the high prices. The end of the global financial crisis has also decreased the prices because during the crisis, the price of a barrel of crude oil increased to $120. It is likely that the prices may continue falling as the currency of USD stabilizes against the oil-exporting countries.

Works Cited
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http://www.oil-price.net/en/articles/oil-price-drops-on-oversupply.php
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