Oil crisis: How long will it last?

Oil prices are plummeting at an all-year high. From $115 per barrel at the beginning of summer last year, it now ranges from $50 to $70. Early last month, price per barrel plunged below $50, and price change is felt in all parts of the world. But no matter how good cheap fuel rate looks like, it has its own snags.

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In some parts of the U.S., companies are cutting jobs, and wages have become stagnant due to the sudden drop. Like what experts say, there are two sides to the coin, and now the other side has flipped.

According to CNN Money report, since the recession ended in June 2009, the oil sector has been responsible for over half million jobs in the country. And because of the oil plunge, gas companies are expected to lay off thousands more in coming months.

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“The 17% increase (1.3 million barrels/day) in U.S. crude oil production in 2014 provides some justification for the massive decline in crude oil prices from more than $100/barrel to less than $50/barrel in the past six months of the year,” McGraw Hill Financial reported in their February 2015 issue.

Due to technological advances and efficiency in production and drilling, there was an ‘over supply’ and demand was not able to catch up. Now, it seems like demand has been chasing supply, which should be the other way around. Because of this trajectory, oil prices are projected downward.

It seems like officials are now pointing their fingers to anyone they think is to blame. Richard Fisher for instance, in a statement to CNN, said that Saudi Arabia is responsible for the oil crisis. Fisher is the head of the Dallas Federal Reserve.

On the other hand, Prince Alwaleed bin Talal, member of the Saudi Arabia’s royal family and a prominent global investor sees this crisis as an opportunity to eradicate shale oil-producing companies.

Saudi Arabia and Organization Petroleum Exporting Countries (OPEC) primarily get their oil reserves from natural production or conventional crude oil. Unlike shale oil, natural crude oil supply is vastly limited and is controlled by oil-rich nations in the Middle East.

United States has the largest shale oil deposits around the world.

Looking at this scenario, with shale oil production, United States removed the oil monopoly from the Middle Eastern region, and arguably, there is no single region or state that controls oil prices.

Last February 13, oil price hit the $60 dollar mark for the first time this year coming from last year’s $45 collapse. An article from The Guardian reported a statement from Analysts of Bank of America about the recent oil price upturn. Analysts said, “a continued build in storage will likely further exacerbate near-term price volatility and keep pressing companies to make capital expenditure reduction decisions that will have long-lasting effects on production.”

The price increase was the result of cutbacks among oil businesses.

The crisis appears to temporarily ease due to deliberate efforts of businesses to reach average price back. But as shale oil companies cut costs, demand will soon overrun supply, and this will account to yet another crisis. The coin flips again.