Oil prices go down again as supply nears storage limits: More complexities at play now.

The following article is based on my own interpretation of the said events. Any material borrowed from published and unpublished sources has been appropriately referenced. I will bear the sole responsibility for anything that is found to have been copied or misappropriated or misrepresented in the following post.

Ravi Padmaraj, MBA 2014-16, Vinod Gupta School of Management, IIT Kharagpur

On 14/3/2015 , Business Standard in its article titled “Oil prices drop as production hums along despite a brimming supply” reported that oil prices has further decreased owing to the fact that the current level of production is very near to testing the limits of storage capacity possible.The latest drop in oil prices was triggered by a report from International Energy Agency who warned that oil production in United States is now very close to the available storage capacity. Even though US may increase its strategic oil reserves to a larger extent , with no intention to decrease production and winter season coming to end , oil production will continue to be greater than the demand. This new development has not forced the Saudi Arabia’s to decrease production either.Instead , Saudi also has now increased their oil production slightly so that they don’t lose their market share.The slight increase in oil prices which we witnessed for a couple of weeks was due to the winter season . Since most countries use oil for heating purposes in Winter , this created an additional demand for oil which triggered a slight increase in prices. Now that winter has passed , oil prices has come down , aided by decrease in demand and increase in production.

There is one more factor at play here . The current relationship of some oil productiong countries with US has been a factor in their level of production. For example : if the US iran nuclear deals go through , Iran would be in a position to produce even more oil because of the decrease in restrictions placed by US and its allies. All these transalates to one surprising fact : There is a lot more oil in this planet than we all thought . What caused the peak oil theories and statistical model to predict 2020 as year where oil production might start declining is beyond my comprehension and knowledge . But in spite of these uncertainities , from the perspective of a citizen who belong to a not so fortunate country with respect to oil reserves , the horizon looks much brighter now. Time for india to build up our own oil reserves may be. After all ,common sense says , any finite resource has to end at some point of time.