Plunging Oil Prices: Causes and Consequences

There have been debates about the causes and consequences of plunging oil prices. Much has been said, but considering only one factor would not be wise to completely understand the whole situation. Some Analysts believe that geopolitics is playing a vital role in this process. Saudi Arabia is one of the most powerful players in the oil industry. It can fracture the objectives of its opponents who are trying their best to retain their position. One point of view is that prices have been dropped down artificially, by Saudi Arabia with the backing of OPEC, to smash the economy of Russia, and somehow of Iran too. Because Russia's economic stability is highly dependent on oil. It is also seen as a direct warning to Russia, who, according to many experts, is playing with fire in the Middle East. So in order to deal with Russians, their economy has to be shattered. This entire situation has a feel for the new Cold War. The Cold War is on the horizon and President Obama would be doing anything to stop Russia from becoming a formidable foe. Also, Saudi Arabia's strategy has clearly seen bearing fruits. The Russian ruble is crumbling. The dollar is now 77.1580 rubles, which is certainly giving Putin many sleepless nights these days.

Some experts talk about another cause for lowering oil prices. They say that besides targeting Russia and Iran, the motive is also against the Renewable Energy Technology producers, commonly known as RET. These innovators are locking horns with the oil producers. So by decreasing the prices of petroleum, energy innovators are being challenged. If the prices remained the same, consumers would have turned to alternates - coal, solar, wind - by now. So, fearing consumers' attraction towards RET, Oil giants, after weighing the pros and cons, had to take that difficult decision.

The consequences are grave. The reduction in oil prices has also affected the shale oil producers in America on a large scale. It is important to note that from August to September 2015, U.S oil production decreased by 120,000 barrels per day. And by November last year, output dropped to nearly 93000 b/d. It is an alarming situation for Shale Oil producers as they extract the oil in highly expensive ways. This has caused the removal of thousands of employees from companies and has produced a chaotic scenario for them. Experts believe that production will continue to drop till the mid of this year. This is the exact outcome that OPEC was hoping to achieve. Despite huge losses, oil cartel is aggressively pumping oil and they have not cut down their production, just to force Shale producers to produce oil on their terms. The terrifying case for the U.S is that the shale oil companies have cut nearly 86,000 jobs till last October, which is perceived as a major blow to the economy as the country is already crumbling with unemployment. It has also put oil and gas projects worth 1.5 trillion USD at risk. But experts are hopeful that with the decline in production and removal of thousands of workers, supply and demand will be balanced in the end.

This whole scenario has aspects of Geopolitics rivalry. It is more like a chess game. Every stakeholder is playing its part. Some oil giants like OPEC are old players and know each and every move, how to make, and when to make. Yes, sometimes, they do gamble. But in doing so their own economies are taking a hit. It is believed that countries with the greatest reserves and shares like Saudi Arabia will survive the shock, but are other economies capable of this too? With Iran entering into the Arena, the game has just got more complicated. Let the events unfold and time will tell us everything that we are anticipating now.