In the recent week, oil prices declined sharply, nearing a six-year low. Crude oil hit the $30 per barrel mark while Brent oil hit the $40 per barrel mark. After the significant drop, oil prices were able to recover slightly from the losses. The only thing we can make of this trend is that it is uncertain how the prices will move from time to time. The trend is unpredictable.
Production Glut
With the data released by the US Energy Department showing that oil production already decreased by 300,000 barrels per day sparking hopes for oversupply to be finally under control, some analysts think that the production will continue to drop further (probably to lose up to one million barrels a day). However, real-time oil production does not support the figures. Refineries are operating at full capacity, worsening the glut. Due to the recent data, continuous oil drilling may be overlooked now so it is important to watch carefully the long-term effects of full capacity oil production.
China’s Turmoil
Problems with China’s economy have become very alarming as the exports are weak and the stock market recently declined. There is a direct relation between a nation’s economic condition and its oil consumption— when the economy declines, the oil demand also declines. A slowdown in the world’s second largest economy plays a big role in the oil market. With China being one of the largest consumer of oil, a decline in its demand for oil will aggravate the existing production glut.
End of an Era for Fracking
Hydraulic Fracturing (commonly known as Fracking), is an effective stimulation technique used in oil production for more than 60 years now, is believed to improve the profitability of oil. However, we have to take into consideration the financial burdens that the fracking industries acquired over the years. With the amount of debt ranging at about one trillion dollars, it would not be too long before fracking companies completely suffer the consequences of heavy loans and reach the end of an era.
Conclusion
Oil may have recouped slightly from the six-year dip, but with the pressing problems stirring oil prices, it still has a long way to go before it finally stabilizes.