Date: 2016-08-12

Low Oil Prices Predicted to Fall: What it Means for Native and Foreign Oil Companies

Ashley Smith

Since American shale oil has joined the oil industry, oil prices have plummeted. Brent crude oil is down more than 60% since last summer, pricing at under $43 a barrel. American light crude oil is trading at the lowest prices in 10 years at under $40 a barrel. Predictions from Goldman Sachs suggest that prices could fall even further. The main concern driving this price drop is supply and demand imbalances--there is too much oil being produced and not enough customers purchasing it all.

The price slump is attributed to both the entrance of American shale oil into the market, but also to the fallen demand from some of the biggest economies in the world. Within the last quarter, China’s economic growth has slowed to its lowest level in six years at 6.9%, and there are concerns that this slowdown will continue the next year. This decline in industry has attributed to its decline in demand for oil. Europe is also among the list of declined oil demand due to its own economic slowdown.

The oil exporters are also experiencing the negative effects of struggling oil producers. Oil producers are being forced to sell assets in order to make up for the losses in price. In order to make a profit, oil producers such as Libya, Algeria, Nigeria, and Venezuela need a barrel priced at over $100. Investors are picking up on the declining trends and are pulling investments. With less and less funds being channeled into the exporters, they are being forced to cut exportation or simply shut down.

Supply is high and demand is low. However, Saudi Arabia has refused to trim supply. The big oil producers have more leeway to survive an economic slowdown, but smaller and newer American companies do not have that luxury. The assumed intention is for the foreign oil companies to push production forward in order to drive American shale producers out of business as they feel the immediate impact of falling prices. It is predicted that, after a nuclear deal made with six world powers in July, Iran has plans to increase oil production even further in the coming years. The International Energy Agency has forecasted that American shale production will begin to fall next year.

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