THE CRUDE OIL PRICES DECLINE DURING 2014-2016 PERIOD. CAUSES, EFFECTS, PROSPECTS

Mariana Papatulica

Impact of Socio-economic and Technological Transformations at National, European and International Level (ISETT), 2015, vol. 10

Abstract: A phenomenon with a strong impact on international oil markets was the sharp decline of the maininternational benchmark prices for international trade (Brent and WTI), from $ 105.7 $/barrel in June 2014, to $ 36/barrel in December 2015. Compared with previous episodes of decline, from the last three decades, the recent decline of pricescan be described, by its magnitude, duration, and effects, as an unusual event. The main drivers responsible for the recentdecline in oil prices compared to previous episodes indicate a predominance of factors related to the supply side, with importantsimilarities with the 1985-1986 episode. Both episodes occured after periods of high oil prices and rapid expansion of non-OPEC oil production in Alaska, the North Sea, Mexico, US (oil shale, tar sands and Canadian biofuels). Also in bothperiods of the price crash, OPEC changed its strategic objectives, moving from a policy of supporting the oil price (by reducingthe offer) to a new one favouring the market share (by maximizing supply).There were some recessions caused by high oilprices: 1973-1975, 1980-1981 and 1990-1991, when the oil price declined because demand has collapsed. Now, whenprices go down, it is invoked, paradoxically, the same fear of recession, though conditions are different. If it occurs, it would bethe most unusual recession - the first ever caused by a decline in oil prices.

Keywords: crude oil price; oil glut; fundamentals; macroeconomic implications; deflation (search for similar items in EconPapers)
Date: 2015
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