Reasons why Oil

Prices are falling

5

Global Demand

& Supply #1

Oil prices have been falling because supplies are up and demand is

down. New sources of oil — including in the US and in Canada —

have added significantly to the global supply. And with a sputtering

European economy and ‘cleaner alternatives’ becoming more price-

competitive, demand for oil has fallen well below expectations.

Reduced Asian demand because of slow economic growth, currency

depreciation and decreased energy subsidies.

Global Demand & Supply:

China and USA increasingly

moving towards domestic

supplies

#2

Exploding US oil production has transformed one of the world’s

leading oil consumers into one of its leading producers as well – in fact,

North Dakota alone produces a million barrels of oil per day. US

production now rivals oil giants Saudi Arabia and Russia, largely thanks

to innovative drilling that has unlocked oil and natural gas deposits

trapped in shale rock. The same case remains with China.

China and USA increasingly moving

towards domestic supplies:

Saudi wants to maintain

market share and OPEC

dominance

#3

As a leading producer, pumping nearly 10 million barrels of oil a day,

Saudi Arabia has outsize influence in the oil markets. And so far, the

crude powerhouse has indicated it’s willing to ride out lower prices

so as to avoid losing customers to US producers or other competitors.

Saudi wants to maintain market share

and OPEC dominance:

World consumption

is anemic #4

China's oil consumption isn't growing as fast as expected. U.S. vehicle

fuel efficiency requirements, set by the Obama administration in

2009, are working. As a result, motor fuel consumption is mostly flat.

European economies, meanwhile, are weak. Combined with the weak

euro means Europeans are less inclined to use energy and a strong

U.S. dollar means that other countries won't feel the full benefit of lower

oil prices.

World consumption is anemic:

Strong Dollar #5

Commodity prices are usually inversely correlated to the dollar.

The DXY, a measure of the currency against a basket of six major

rivals, has been up since the beginning of the year. The oft-cited

rationale is that a stronger currency makes dollar-priced commodities

more expensive to buyers using other currencies. Oil’s plunge started

not long after the dollar rally began to accelerate. Another point to be

noted is tapering has also lead to reduced liquidity.

Strong Dollar:

Brent Crude Chart:

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