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Volume 42 Issue 2
The downward trend of oil prices since
mid-2014 is still drawing the attention of many
experts in oil industry as the concerns about
its impacts on the entire global economy and
on the producing and consuming countries and
on the future of the oil industry as whole are
increasing. It’s worth noting that there is a great
similarity between the factors which affecting
the oil price today and its counterpart, which
prevailed during the mid- eighties crisis. There
was an increase in Non-OPEC oil supplies ,
especially from Alaska, Mexico and the North
Sea region, concurrent with the slowdown in
the growth in oil demand. OPEC countries, at
that time, have decided to address the situation
by cutting down their production in an effort to
restore stability in the oil market and to prevent
more collapsing in oil prices. That action led
to OPEC losing a significant share in the oil
market, as OPEC’s share fell from 42.6% in
1980 to only 27.2% in 1985.
At present, oil prices fell from their highest
level of $107.9/b in July 2014 to their lowest
level of $ 26.5/b in January 2016, representing
a decline of $81.4/b or about 75%. It’s
noteworthy that this level was not seen since
September 2003, when prices then reached a
level of $ 26.3/b.
Many factors have contributed in one way
or another in the decline in oil prices, on top
of that is the oversupply of crude oil which
prevailed throughout the year 2015 and the
beginning of 2016. The oil market has recently
been characterized by the surplus in oil supply
which reached about 2.1 million b/d in the first
quarter of 2015, 2.7 million b/d in the second
quarter, and 1.7 million b/d in the third and
fourth quarters. The surplus in
January 2016 has reached 2.5
million b/d.
It is worth mentioning that
the surplus in oil supply in
2015 has mainly came as a
result of the increase in Non-
OPEC oil supply. About 70%
of the increase in Non-OPEC
oil supplies came from the
United States especially from
the shale oil, and the remaining
(30%) was divided between the
Canadian tar sands, deep water
oil from Brazil and the increase
Oversupply of Oil and Its
Impact on Oil Prices
ABDULFATTAH DANDI
Director of Economics Department- OAPEC
Point of View
* The contents of this article are the author’s sole responsibility. They do not necessarily represent the views of OAPEC or any of its members.