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Mercantile Exchange Blog

Nov 28 2013

Oil Drops...!!!!!!!!

Oil is such a commodity that is extracted, refined, and sold. The price of oil rarely is based on simple supply and demand. It's one of the most complex commodities in the world because of the economic and political implications it carries. Oil futures price dropped to the lowest in nearly six months .The reason behind this is the data from the U.S. government, the world’s biggest oil consumer that showed a 10th weekly rise in crude supplies. Monthly estimated domestic crude oil production exceeded crude oil imports in October for the first time since February 1995, while total petroleum net imports were the lowest since February 1991. According to American Petroleum Institute, inventories increased by 6.92 million barrels last week, while the Energy Information Administration reported that crude supplies climbed by 750,000 barrels. The US crude production rose above 8 million barrels a day last week for the first time in almost 25 years, cutting dependence on foreign oil and pushing the country toward energy independence. Due to the increment in domestic production and large quantity of reserve of oil and decrease in import it leads to decrease in oil price. According to current estimates, more than 81% of the world's proven oil reserves are located in OPEC Member Countries, with the bulk of OPEC oil reserves in the Middle East, amounting to 66% of the OPEC total. The Iran itself has the 13% of the oil reserve of the OPEC members. In June 2012, there were 23 importers of Iranian crude; today, only six has remain - China, India, South Korea, Japan, Turkey and Taiwan. This may be reason for increase in supply of the oil. Recently, Iran reached a six-month accord with world powers to limit its nuclear program in exchange for as much as $7 billion in relief from some sanctions. This might be a reason for decline in oil price. The other reason might be the pipeline threat that the Canadians are planning to go ahead with the Keystone Pipeline to export heavy oil from Canada to the U.S. Gulf Coast that might increase the supply. Thus, decrease the oil price. The other factor that determines the price of oil is U.S Dollar. Due to inverse relationship between the price and oil, one of the major reason for the decline of the oil prices may be the strengthening the U.S Dollar. Manipulation of worldwide oil pricing is most influenced by commodity speculators, economic growth, weather conditions and OPEC production decisions