As of January 2016, oil prices are below $30 per barrel, and experts estimate it will be years before the previous price of $90-$100 per barrel can be restored. A primary cause for the drop in oil prices is the Organization of Petroleum Exporting Countries's refusal to raise prices, despite an excess in the global oil supply. Saudi Arabia (OPEC's dominant oil producer and decision-maker) has insisted on maintaining high levels of output at excessively low prices in its battle for market share. Historically, OPEC resolved imbalances in the market by decreasing its collective production rates to keep prices within a safe range. OPEC's current actions suggest that it is trying to eliminate competitors who rely on high-cost production methods (e.g. companies drilling in the shale fields of Texas and North Dakota). In 2015, Saudi Arabia increased its oil production from 10.1 million barrels a day in April to 10.45 million barrels a day in July. Meanwhile, West Texas Intermediate
The benefits of cheap oil are outweighed by global financial damages. Cheap oil prices are no less troubling to OPEC nations than to the rest of the world, but the cartel has resolved to protect its interests in spite of these concerns. Saudi officials fear that cutting their oil production will create a rise in oil prices, a loss of market share, and benefit their competitors. Given the growing financial strains, it is uncertain as to whether Saudis will actually continue on waiting for oil prices to drop further. In September 2015, oil prices dropped below $40 per barrel, which already was unsustainable for producers. Saudi Arabia seems to be waiting for more US companies to decline, deliberately sustaining damage to itself in the meanwhile. One such company in decline is ConocoPhillips
Experts believe that OPEC's efforts largely target US oil producers. The domestic oil market in the US expanded as a result of the 2008 shale boom. Improvements in cost and fuel-efficient technology led domestic oil production to nearly double, displacing foreign importers from the US demands market. Those importers (e.g. Saudi Arabian, Nigerian, and Algerian oil companies) were forced to drop their prices, as they competed for Asian markets. Simultaneously, the world saw a rise in Canadian and Russian oil exports, declining European demand, and weaker European economies overall. In response to the oil glut, US companies are slowly cutting production. Smaller companies are in great financial danger, but must continue to produce to pay off their lenders. As of January 2016, approximately 40 North American oil companies have opted for bankruptcy protection. Larger companies have decommissioned many rigs, cut investments and laid off workers. Despite the glut, these companies must also continue producing to sustain ongoing, long-term projects like the one in the Gulf of Mexico. Lower oil prices have harmed the domestic economies of Alaska, North Dakota, Texas, Oklahoma and Louisiana.
In previous years, crude oil was heavily demanded by the expanding global middle class in developing nations. One such nation is China, though the Chinese economy is currently weakened by currency devaluation, resulting in a decline in Chinese demand. Investors worry that coupling declining Chinese demand and expanding Iranian production will only exacerbate the global oil surplus.
Experts predict that immediate responses to OPEC include global price volatility and short-term price uncertainty. The glut is likely to persist, due to unyielding Saudi Arabian production rates. The glut may potentially discourage alternative oil production methods, paving the way to higher prices in the future. Experts discourage domestic oil companies from seeking new oil because selling industry knowledge to foreign oil companies is more profitable. Liquidating existing oil supplies as soon as possible, is also advised. Factors propelling this shift include the global environmentalism movement and new efficiency technologies. These factors suggest that investments in fossil-fuel alternatives will pay off in the long term. Oil is now subject to marginal cost pricing, such that whoever produces most cheaply, sets the price. Because of this, big American oil companies like ExxonMobil
In Russia, economic contractions related to the oil price drop are currently taking place. Because the Russian budget for 2016 was built assuming $50 per barrel of oil, it now needs to be revised. The Russian economy relies disproportionately on energy exports. Nearly half of Russia's revenue comes from taxes on gas and oil. Russia is currently experiencing inflation, falling real incomes, cut social benefits, and projected job losses. It is in danger of prolonged recession and social protest. The economic decline of the rouble parallels that of oil prices.
In the US, legislators have lifted a recent ban on exporting US crude, and American energy companies are now preparing to export to Europe, and eventually Latin America and Asia. The first US company to export its oil was ConocoPhillips, which sent oil from Texas to Bavaria, Germany. Enterprise Product Partners LP