In the mid-2000s, the oil prices have spiked up drastically because global demands were surging, especially in China. Recent years, between 2011 to early of 2014, the oil even hovered around $100 per barrel.
However, as oil prices increased, many alternatives of extracting oil have been developed. In the United States especially in North Dakota and Texas, enhancement in fracking and horizontal drilling to extract oil from shale formations leads to a boost of oil production. US has added about 4 million new barrels of crude oil per day to the global market since 2008.
The increase of US oil along with those in Canada and Russia had a fairly minimal effect on global prices until recently when there was a combination of weaker demand and rising supply. For examples, Libya had a civil war, Iraq was a mess, Iran was having oil sanctions from US and Europe and the oil demand in Asia and Europe has been weakening. All these factors lead to the dropping of oil prices in near September 2014. The oil prices started to drop from their June peak of $115 per barrel down to around $80 per barrel by mid-November. It is still much pricier than it was a decade ago when it was around $40 per barrel. But it is dropping for now.
The OPEC meeting by those main oil producers including Saudi Arabia, Iran, Iraq, and Venezuela on November 27 has decided not to cut back on their oil production in order to prop up prices. Some countries (like Venezuela and Iran) wanted the cartel to cut back on production because they need high prices to balance their government spending. On the other hand, Saudi Arabia wanted to let the prices keep dropping because they have learned a lesson in the 1980s, when prices fell and the country tried to cut back on production. However, the prices kept declining anyway and Saudi Arabia simply lost market share. Furthermore, the country can survive with lower prices around $80 per barrel in the short term as they has solutions such as building up massive foreign-exchange reserves to finance deficits. In the end, they chose to do nothing and observe whether the dropping in oil prices could compete and win over those US producers who extract oil from shale formations. At that time, oil prices will stabilize and OPEC maintains its market share.
It is obviously a price war between the crude oil extraction in OPEC countries and the shale oil extraction in US. It's still unknown how's the trend going on.
Further reading:
http://www.vox.com/2014/11/28/7302827/oil-prices-opec
However, as oil prices increased, many alternatives of extracting oil have been developed. In the United States especially in North Dakota and Texas, enhancement in fracking and horizontal drilling to extract oil from shale formations leads to a boost of oil production. US has added about 4 million new barrels of crude oil per day to the global market since 2008.
The increase of US oil along with those in Canada and Russia had a fairly minimal effect on global prices until recently when there was a combination of weaker demand and rising supply. For examples, Libya had a civil war, Iraq was a mess, Iran was having oil sanctions from US and Europe and the oil demand in Asia and Europe has been weakening. All these factors lead to the dropping of oil prices in near September 2014. The oil prices started to drop from their June peak of $115 per barrel down to around $80 per barrel by mid-November. It is still much pricier than it was a decade ago when it was around $40 per barrel. But it is dropping for now.
The OPEC meeting by those main oil producers including Saudi Arabia, Iran, Iraq, and Venezuela on November 27 has decided not to cut back on their oil production in order to prop up prices. Some countries (like Venezuela and Iran) wanted the cartel to cut back on production because they need high prices to balance their government spending. On the other hand, Saudi Arabia wanted to let the prices keep dropping because they have learned a lesson in the 1980s, when prices fell and the country tried to cut back on production. However, the prices kept declining anyway and Saudi Arabia simply lost market share. Furthermore, the country can survive with lower prices around $80 per barrel in the short term as they has solutions such as building up massive foreign-exchange reserves to finance deficits. In the end, they chose to do nothing and observe whether the dropping in oil prices could compete and win over those US producers who extract oil from shale formations. At that time, oil prices will stabilize and OPEC maintains its market share.
It is obviously a price war between the crude oil extraction in OPEC countries and the shale oil extraction in US. It's still unknown how's the trend going on.
Further reading:
http://www.vox.com/2014/11/28/7302827/oil-prices-opec
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