Oil Prices Plunge In Pre Market
Is Vladimir Putin To Blame? Or Is There Something Larger?
Oil prices are reported to open significantly lower on Monday, as futures in London are trading well below Friday's close of above $41 a barrel. Some reports have indicated it could open as low as $32 per barrel on Monday. Today the Saudi Arabian Stock Exchange fell more than 8%.
Vladimir Putin has refused to let Russia join Opec while Saudia Arabia has continued to boost production, ignoring the demands of Opec. Without these cuts to production, oil will continue to get sold off. A trend that began with American innovation. Now oil's drops are getting dramatic and making headlines today for a lack of a global partnership with Opec on price cuts and a global slowing in the short term from Coronavirus concerns. But, we believe this is only the expediting of a trend that goes back decades.
From the 1980s to early 2000s, oil prices have been on a decreasing trend. Then, around the start of the Iraq War, oil prices began rising and kept rising. Though not the only reason, the Iraq War was an important factor in this price increase. Iraq contains an extremely large oil reserve supply, with a reported 112 billion barrels in 2003. The war decreased production of oil greatly, and due to basic economic principles, a decrease in the supply of a good would increase the price. This price increase continued throughout the 2000s, until the crisis of 2008 whereupon it tanked to $32 a barrel. Since 2008 oil prices have been on a generally downward trend, matched by an increase of oil fracking in the US.
Hydraulic fracturing, or fracking is a drilling method that involves injecting highly pressurized liquids into cracks in the earth to better extract oil or gas. This process, while having a very high success rate in terms of extracting fuels, is subject to much controversy. Fracking is associated with many environmental concerns, most notably polluting groundwater. Though there are many controversies connected to fracking, it is so integral to the US oil production that it seems fracking is here to stay. If hypothetically, there were to be a ban on fracking, the world’s oil supply would decrease by 7% and gas supply by 17%, according to the Manhattan Institute. The economic effect from such a ban would be so great that there would be no way for alternative energy sources to compensate in time.
Through its high efficacy, oil fracking is rapidly increasing the US and world supply of oil, decreasing oil prices in the short run. In 2017 OPEC reacted to this oversupply and cut oil production in hopes of driving prices back up. This production cut did in fact increase oil prices, however it is unclear if these prices will be sustainable or if it was only a temporary fix. Another question of note is if the oil price decrease will continue in the long run.
As the world’s supply of oil quickly depletes due to technologies such as fracking, in the future there could be a much-lowered supply, increasing the price of oil to new heights. Though the world’s oil supply will probably never completely run out, it may deplete to a point that requires much more effort or new technologies to extract. Alternatively, if the price of oil becomes extremely high, consumers may look to other fuels as substitutes, decreasing demand and price of oil. Overall, it seems that researching and developing alternative energy sources is becoming more and more important for our sustainability.
Written by Bryan Xiao & Edited by Alexander Fleiss