The surplus in oil production this year has resulted in a major slump in the oil markets this year. Oil prices have been continuously falling for over a year while oil producing nations are worried about a backlash and a potential doom in their local economy. The price of oil has plummeted to 40 dollars per barrel, which is one of the lowest points of oil prices in over two decades. The combined efforts of the OPEC and the United States have failed to boost the oil market.
Oil market condition
The two largest contributors to the oil prices have been the United States and Iraq. There has, however, been a lopsided benefit for Iraq’s oil producing capacity. While most of the consumers bask in the cheap oil prices globally, there has been a storm brewing that could prove detrimental for the global economy. Iraq, which has provided a glut of oil seems to be incapable to work on the production and selling of the product as they are short of funding due to the ominous presence and threat that the Islamic State poses. There have also been a huge number of oil wells that have been captured by the Islamic state and used by them, which works against Iraq’s ability to capitalize on them.
On the other hand, the United States had to curb its supply of oil to the masses so that they could maintain global prices of oil and not spur the world into a depression market. The other larger producers of oil such as Saudi Arabia, Nigeria, Russia, and Kuwait hope to benefit from the reduction in oil supply. These OPEC countries can now sell their oil at a higher global price, which could work as a counter balance and mitigate the problems that face the oil market.
The oil supply glut
Forecasts state that since the glut of oil is available, if it were to be supplied to the nations at throw away prices, 2016 could see a form of depression that would be extremely hard to combat and revive from. The United States and Iraq have been the largest contributors to the glut in the supply of oil. The two nations are now pumping the equivalent of 4.88 billion barrels a year, an increase of 1.77 billion barrels or almost 60 percent, compared with their output rates at the start of 2012. To put that in context, oil inventories in Organization for Economic Co-operation and Development nations expanded by 314 million barrels or 12 percent in the corresponding period.