Thursday, 18 December 2014

Enjoy The Cheap Petrol While It Lasts

The most obvious winner from the falling cost of a barrel of oil are drivers who have seen forecourt prices trickle downwards and many experts are predicting 99p a litre by the turn of the year which is proving to be very popular.
The question is why is the cost of a oil down to around $60 a barrel when a few years ago it was up around $130?
The Automobile Association explain that because of soaring oil consumption in countries like China and conflicts in key oil nations like Iran and Libya, oil production couldn't keep up with demand, so prices spiked.
Now, due to the long lasting recession, the demand for oil in places like Europe, Asia, and the US has been tapering off and with Libya and Iraq now producing again, there is a surplus of oil so the price has gone down.
Another reason is that the US and Canada have started drilling for new, hard-to-extract crude in North Dakota's shale formations and Alberta's oil sands adding another 4 billion barrels per day to the now saturated market.
Then there is OPEC who are the oil-producing nations that pumps out about 40% of the world's oil and who influence the price of oil by coordinating either to cut back or boost production.
At its meeting in Vienna in November, it was decided by the major player, Saudi Arabia, that it wouldn't cut production and was willing to let prices keep dropping so it would not lose its market share. 
It also know that it is cheaper to pump oil out of their places while much more expensive to extract oil from shale formations in places like Texas and North Dakota so they would be the ultimate loser from falling prices. So as the price of oil keeps falling, North American oil producers will become unprofitable and go out of business and remove their oil from the pool forcing the oil prices to stabilise for OPEC.
The ploy seems to be working as the Financial Times is already pointing out that the oil-producing states like Texas and North Dakota are seeing a drop in revenues and economic activity while Alaska's state budget is under pressure but meanwhile, enjoy the low petrol prices and the imminent fall in gas and electric bills because sure enough, they will start rising again soon enough.

3 comments:

Keep Life Simple said...
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Lucy said...

If they and many other Americans and Canadians lose the lot it's because of the Saudi's.

Keep Life Simple said...
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