Oil Prices Article Review

Length: 2 pages Sources: 2 Subject: Energy Type: Article Review Paper: #83621999 Related Topics: Fracking, Supply And Demand, Field Trip, Fossil Fuel
Excerpt from Article Review :

¶ … Oil replays 1980s bust discusses the collapse in oil prices in the mid-80s versus the collapse in oil prices in the second half of 2014. He notes that while the pace of decline was similar, than the reasons behind the decline are different. The author notes that time is an important variable. Prior to hydraulic fracking, oil projects were massive in scope and scale, and took many years and billions to bring to fruition. As a consequence of this, the supply of oil on world markets was fairly easy to predict. New oil would not suddenly materialize from just anywhere. Today, the time lapse between when oil is discovered and when it hits the market is much shorter, and the cost is lower. The wells in the shale fields are smaller, so the entire exploration and extraction cycle (i.e. The cash conversion cycle) is shortened considerably. This also encourages new money to get into oil, because the returns come faster.

In the 1980s, there was a lot of new supply coming onto the markets, but the oil supply was still in the market as well. This created a glut, which combined with a sustained reduction in demand, drove prices lower. Ultimately, oil prices are determined by supply and demand conditions. The author looks at the supply...

...

The supply has increased significantly with the new shale developments, at a point when demand in the West is peaking -- there is still some growth in places like China but the increase in supply has outpaced the increase in demand. Industries observers rightly point out that oil is still finding its equilibrium point. Because of the short cash conversion cycle, the market will adjust more quickly to the latest price declines, as the low prices will stunt the development of new wells. This will slowly re-align supply with demand, causing prices to rise back up. The only real issue is how long this process will take, and where the equilibrium point will be (Gold, 2015).

The role of OPEC in the price movements should also be considered. OPEC is a cartel, and their management of global oil production is one of the mechanisms that reduces the influence of the market, in order to influence the prices. OPEC would normally seek to maintain higher prices by cutting its output (and thus global supply),…

Sources Used in Documents:

References

Gold, R. (2015). Back to the future? Oil replays 1980s bust. Wall Street Journal. In possession of the author.

Pritchard, A. (2015). It looks like North America will win the global oil war -- but it will be a long and bloody battle. Financial Post/The Telegraph Retrieved April 26, 2015 from


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