G
Always
flux
OIL PRICE
Oil prices have fluctuated ever since the black gold was first
traded. Until recently, the supply was controlled by countries
with large oil reserves. But new production methods are now
changing the mechanisms of the market.
Text: Daniela Schröder
Photos: mattjeacock/Getty Images, Edelweiss/Fotolia
in
ood news for consumers: gasoline and heating oil are cheaper
than they have been for a long
time. Industry is also profiting from lower energy costs
with regard to production and
transport. After many years at a
continuously high level, oil prices have plummeted
in the space of just a few months – contrary to all
predictions. Does this fall in oil prices mean a revolution with low energy costs that are here to stay? No, is
the clear answer from the experts. Although the crude
oil market is experiencing fundamental changes, the
price of oil will continue to fluctuate in the future.
The main reason for the significant decline in
oil prices since summer 2014 is excess supply on the
world market. During recent years, when oil prices
stood continuously at over $100 per barrel, producing
countries brought more and more oil onto the market. In particular the United States. Thanks to the
production of shale oil, which the industry obtains
from dense layers of rock, oil production in the US
has massively increased – since 2011 alone by more
than 50 percent. Due to the boom in domestic production, Americans are importing less crude oil, which
in turn is increasing the level of supply on the world
market. But these additional quantities are meeting
with a decreased demand because global energy consumption has declined.
The global economy continues to suffer from
the financial and debt crisis. In the major national
economies the growth rates are not as high as predicted. China’s boom is flagging, Europe is still getting though the euro crisis, and the US is showing
only signs of a slight upswing. In addition to the weak
UP AND DOWN
Supply and
demand determine
the price of oil.
During the global
economic crisis
of the 1930s, it
plunged to $0.65
per barrel – a
historically unique
low point. When
the economy
­began to recover,
this marked the
start of the “golden
age” of cheap oil,
and it became the
basis of the global
economy.
economic situation, in industrialized countries the
trend towards higher energy efficiency is reducing
oil consumption. Cars need less gasoline, and both
households and companies are choosing environmentally friendly alternatives such as renewable
energy and natural gas.
At the present time, some 2 million tons of crude
oil more than required are appearing on the market
every day. Excess supply on a scale like this has happened in the past. In such cases the member states of
the Organization of the Petroleum Exporting Countries (OPEC) ramped down their production and secured the price of oil against further losses by cutting
the level of supply. Last year, however, OPEC – led by
the biggest producing country, Saudi Arabia – kept
to its production quotas despite falling oil prices.
As a result, crude oil prices continued to drop.
By the end of the year prices had reached
$50, which is a reduction of more than
50 percent. Oil market experts
see a fundamentally new
line of thinking in
Executive summary
1.
Black gold In the mid
1840s, industrial drilling
for oil began for the first
time anywhere in the world – in
Baku on the Caspian Sea. Until
the 1920s, crude oil was mainly
used as fuel for lamps.
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2.
Economics More than
two-thirds of the oil
produced is used for
heating purposes and power
generation. The chemicals
industry processes it into gasoline, kerosene, PVC, and foam.
3.
Oil price As the price of
oil is traded in dollars,
it reacts to fluctuations
in the American currency. If the
dollar rate falls, this increases
demand in other currency
areas – and the oil price rises.
4.
Gas price Its link with
the price of oil is no
longer as important as
it was years ago. While the price
of oil has almost halved during
recent months, gas prices are
much higher.
ISSUE 2_2015
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MARKET / OIL PRICE
1997/98
1979/80
1973
Yom Kippur War
When OPEC
reduced production
volumes in the fall
of 1973, after the
war between Israel
and ­neighboring
Arab states, the
oil price exploded.
Germany reacted
with a ­driving ban
on Sundays.
1990
Gulf War
In January 1991, an
anti-Iraq alliance led
by the United States
began to attack Iraq.
The oil price dropped
to $20 a barrel.
The market should decide the price, not
reduced production quotas.
the pricing policies of the oil-rich Gulf states with
their comparably low production costs. “Supply and
demand should now decide the price, not reduced
production quotas,” analyzes the American economist Daniel Yergin of Cambridge Energy Research
Associates.
Fluctuations in the nominal oil price
and their triggers
Price in US$ per barrel of crude oil
The reason behind the recent price turnaround is
tougher global competition. Saudi Arabia and the
other big oil countries on the Arabian Gulf are no
longer prepared to give market share to competitors.
The oil countries are especially fighting for market
share in the world’s most recently growing markets
in South and East Asia. Any country that does not export is supporting the competition. A lower crude oil
price harms countries in which the production costs
are high – above all in the US, or in countries that are
short of money, such as Venezuela.
T
OIL MARKET HAS RAPIDLY CHANGED
80
60
1979/80
Iranian Revolution
and Iran-Iraq War
37.42
40
20
1973
Yom Kippur War
4.75
1990
First
Gulf War
23.19
2001
September 11
23.00
2015
Fracking
52.69
1997/98
Asian crisis
11.91
1950 1956 1962 1968 1974 1980 1986 1992 1998 2004 2010
0
12 GASWINNER
he change in strategy by the Gulf states means
that the oil market “has become a normal
competition market in which suppliers with
low costs want to drive producers with high costs from
the market,” explains Hamburg energy market analyst Steffen Bukold. Whether or not the strategy of the
Arabian oil exporters will work remains to be seen. It
is true that the shale oil industry in the US is suffering
from falling prices, companies are stopping projects
and cancelling plans, and some are on the verge of
bankruptcy. However, shale oil production has the
potential for more efficiency, which in the long term
ISSUE 2_2015
September 11
Following the devastating terrorist attacks, there
was a noticeable decline
in oil consumption. Crude
oil prices dropped by the
end of the year to under
$17 a barrel.
2015
Shale Oil
Thanks to the shale oil industry, the
US is once again producing oil volumes
comparable to those of the late 1970s.
would mean lower costs. Changing consumption patterns, a different supply situation, new roles for producers – within just a few months, the oil market has
undergone fundamental changes. The International
Energy Agency (IEA) sees this as the “start of a new
chapter.” American analyst Daniel Yergin speaks of
“the beginning of a new era in the history of oil.” A
price peak of $110 or more won’t be seen again for a
long while. But at this point, not even the experts are
prepared to predict how the price will actually develop. Not only does the price of oil depend on supply and
demand, it is also determined by geopolitical factors
and crises. Even the International Energy Agency
describes the uncertainty of long-term price predictions as high.
T
In 1979, exploding oil
prices made headlines.
OIL CONTINUES TO PLAY AN IMPORTANT ROLE
Graphics: C3 Visual Lab
The biggest fluctuations in the last 30 years
Photos: Sven Simon/Süddeutsche Zeitung Photo, Reuters/ullstein bild, Gilles Peress/Magnum Photos/Agentur Focus, ddp images, Susan Meiselas/Magnum Photos/Agentur Focus, Les Stone/Corbis, Der Spiegel, Nationale Geographic
Crises, wars and terrorist attacks
2001
The Asian crisis
led to a decline in oil
consumption. When the
economy began to pick
up in the new millennium,
the reduced production
volume caused prices to
rise to $34 per barrel.
Iranian Revolution
During the coup in
Iran, oil production
came to a standstill.
The world’s secondbiggest supplier
stopped producing.
Panic buying further
increased scarcity. The
consequence: a price
increase from $13 to
$34 per barrel.
he question of how much oil will be available
in the future is still disputed. Forecasts range
from a collapse in production in just a few
years through to the assumption that crude oil will be
able to meet even a rising energy demand for decades.
With regard to shale oil in the US, both the IEA and
the US energy authority expect that the production
curve will plateau in ten years.
In the long term, crude oil will therefore continue
to play an important rule. It is the most important
raw material of the industrialized nations, it dominates global energy production, and it is found in
nearly all of our everyday products. A low crude oil
price therefore continues to help the global economy.
ISSUE 2_2015
In 2004, National
Geographic reported on
oil drilling in the Pacific
and in Canada.
Countries with a high level of industrial production
such as Germany, Japan or China, which import the
biggest quantities of crude oil in the world, are profiting from these lower oil prices. In addition, newly
industrialized countries such as India or Indonesia
can eliminate their energy subsidies and gain more
scope for keeping down inflation in their domestic
economies in order to drive consumption.
The lower oil price has a negative impact, however, on countries that depend on exporting the raw
material. While rich producing countries such as
Saudi Arabia and Qatar can withstand the low price
level for years, a continuously low oil price will quickly
send other export countries into an existential crisis. Venezuela is on the brink of collapse, in Iran
youth unemployment is rocketing, Nigeria has had to
drastically limit foreign exchange trading, and even
Russia has already curbed its expenditure.
I
LOWER PRICE SLOWS DOWN INVESTMENT
t remains questionable whether oil will continue
to be cheap. Low prices mean that it is not worthwhile for industry to develop new sources of crude
oil or invest in new production technologies. Consequently, this will result in a lower level of supply in
the future. If demand then rises, the prices will climb
disproportionately. Last but not least, a low oil price
also influences the future course of the energy supply industry. If there is suddenly no incentive to save
energy, the willingness to invest in energy efficiency
measures will also decrease.
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