Will Decreasing Oil Prices Pick Up?

The main reasons for the decline in oil prices are US production growth, “sputtering demand” from China and Europe and Mideast violence. A steeper decline could be observed on October 1st when Saudi Arabia cut prices for its biggest customers. This served as a signal that the world’s largest exporter wold rather protects its own market share than increase prices.

That, for me, was the giveaway,” Carbone said in an October 28 phone interview from his office. “Once it started going, it was relentless.”

The outbreak of a new OPEC price war is promoting doubt about making investments in oil resources. Brent crude declined to $82.60 a barrel on October 16th  – the lowest in nearly four years. West Texas also reached $79.44 on October 27th. However, the OPEC Secretary-General is denying the existence of the price war: “Our countries are following the market,” he said at the Oil & Money conference in London. “People are selling according to the market price.” According to Jeff Grossman, prices were higher earlier in the year because of the conflicts in Libya, Iraq and Ukraine which could have interfered with oil production.

This one caught a few people off guard because they were still worried about some of these geopolitical things that were happening all over the world that never came to fruition,” said Grossman, a New York Mercantile Exchange floor trader. “We probably never should have been over $100.”

OPEC now faces competition from the US due to its breakthroughs in hydraulic fracturing and horizontal drilling, enabling domestic production to replace imports. However, according to Katherine Spector, the US’s production has been increasing for years now without triggering a bear market. We can now observe an increase in demand, a rise in supply which does not reflect the magnitude of the 25 percent change in the market.

ConocoPhillips became the first company to announce reduction of expenditure in West Texas and the Rocky Mountains regions. Exco Resources Inc. will also sustain from drilling in North Loisiana because of lower prices. Al Walker, chairman and CEO of The Woodlands, said during a conference call that they will “watch this for a few more months and when we announce our capital plans in March, we’ll have a much better idea of what we expect.”

Consumers, on the other hand, are celebrating the 20 percent decrease in oil prices. Some analysts, however, do anticipate a price rebound.

Read more here – “Why Oil Prices Went Down So Far So Fast,” (Isaac Arnsdorf, Bloomberg).

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Anna is a current student at The George Washington University in Washington, DC with a concentration in Marketing and Communication. She specializes in social media outreach and has experience working in government contracting.

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