Oil continues to dominate the headlines around the world. Its fluctuating prices have been causing headaches for some and relief for others. We investigate what has caused such volatility over the last few years.
Why did oil rise so much throughout the 2000’s? It was due to a combination of a number of events and factors. Early on, unprecedented growth of China saw demand surge. As the Chinese economy continued to grow year on year, both by population and economic prosperity, oil demand to drive the economy continued to rise. In addition to this, tension in the Middle East allowed for disruptions in oil production. As a result, supply was constantly trying to keep up with demand.
High oil prices also provided justification to invest in technologies and methods to explore in areas in which oil is harder to extract. Canadian and U.S. companies started turning to shale oil, and dozens of small companies opened up across the two countries, reviving an industry that was all but dead many decades ago.
Additionally, bigger companies like BP and Shell began investing in ways to drill deeper and horizontally to find oil. Investing in exploration and production reached record highs, year on year. Russia even started to drill in the Arctic!
Furthermore, the rise in technology to extract oil which was previously too hard to get from fields in decline meant that supply was eventually going to match the seemingly endless demand.
In total, these “unconventional” methods of oil production have added over 4 million extra barrels of oil a day to the market.
However, due to a blip with the global economic crash, prices quickly returned to the $100/barrel mark on the back of an economic recovery and continued tension in the Middle East. Despite the increasing volume of oil on the market, all the world’s conflicts were ensuring there was a significant price premium.
Mid-2014 was the turning of the tide. Economies began their slowdown, namely China and many countries in the Eurozone. Efficiency in the transportation sector and the rise of electric cars further led to a decline in demand for petrol.