Oil Falls To 7-Year Low
Oil prices fell to a 7-year low Monday, due to a glut caused by new extraction techniques and advancements in alternative energies.Oil’s drop to US$37.50 a barrel marks the cheapest it has been since the Great Recession started in 2008. It was only June 2014 that the commodity was at an all-time peak of US$104 a barrel.
Prices steadied on Tuesday, although banks such as Goldman Sachs have said oil could fall to US$20.
Oil prices began falling last year, as American shale began flooding the market. The U.S. has vaulted near the top of the global oil leaderboard, stealing market share from OPEC. Other countries, including Canada and Brazil, also ramped up production.
Another factor is China’s economic slowdown. Explosive growth there helped fuel strong demand for raw materials like oil, and even sparked predictions that crude would continue soaring to US$200 a barrel or beyond. Crude last broke below US$38 a barrel in late August amidst chaos in global financial markets sparked by fears about China.
Inventories of oil have swelled to a record of nearly 3 billion barrels, according to the International Energy Agency. It’s gotten so bad that a “traffic jam” has emerged in the U.S. Gulf Coast of oil supertankers waiting to be offloaded.
Despite the drop in prices, oil cartel OPEC decided against lowering production levels on Friday, in an effort steal back market share. This has left nations like Venezuela and Nigeria, who depend on high prices to maintain their economies, stuck with little options.
While the lower price of oil is good for consumers, with American gas prices going down to near US$2 a gallon in many states, energy companies like Exxon, Mobil, and Haliburton have suffered in their profit margins.