The oil game

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 Any material borrowed from published and unpublished sources has been appropriately referenced.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.

Aparjeet Kaushal, MBA 2015-17, Vinod Gupta School of Management, IIT Kharagpur

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The oil industry is one of the most price sensitive industry in the world. With almost every aspect of businesses linked to the oil it act as the pivot of all action. Any minor changes in the prices of oil causes a series of chain reaction that results in changed dynamics of various industries and economies dependent on this natural resource.

Currently the oil industry is facing the worst period of its since 1990s. The top notches of the domain are also laying low on the profit, putting a check on their explorations and mining activities. Companies are on the edge of bankruptcies and several thousand workers rendered unemployed. The cause is the plunging oil prices all around in the global market.

 

The next question that comes into the mind is the cause for the same. Well, the question is complicated but can be easily tackled with few basic concepts of economics. With the ever-increasing production of oil in US the competitors are in a hoard to find a new market for the same. Almost all the well are being pumped out at their top. But still the production is plunging due to drop in exploration demand. But the drop is not fast enough to sustain a proper pull in the market and thus leads to a negative impact and lagging a bit.

The dropping of the prices has certain positives also as the common households gets cheaper fuel and in turn every linked article is getting cheaper as the transportation cost is coming down. But on the loser’s side oil producing states like Ecuador, Venezuela etc. are on the verge of economic upheaval. Countries like US, Iran are also facing the same issue with dropping of the prices.

 

Some conspiracy theory states that it is a well-planned strategy to bring down the Soviet Union. But there is no evidence to support the conspiracy theories and thus can be categorised as speculations only.

Although the recovery may take time, it is believed to be shifting towards its normal course by the end of 2016. The countries with surging demand of fuel in them are also expected to play a vital role in this equation of oil pricing.

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