In the last decades, oil has been the engine of global economy. Under these conditions the oil addiction of all economic, political and military actors has grown exponentially. There is no doubt that whoever controls the major reserves of oil may dominate the world.
In recent years we have observed an interesting phenomenon - but also dangerous at the same time - for OPEC members and for other countries too: oil production globally has increased enormously. Thus, It has reached what is called overproduction: a type of inflation regarding the oil market. Global consumption of oil has been far surpassed by production capabilities. In these circumstances the price of oil has fallen steadily.
The Brent oil and West Texas Intermediate costs almost the same
The Brent crude price and that of West Texas Intermediate (WTI) is now down to the level of ten years ago. Brent price is decided by the London market. In June last year it was over $ 115 a barrel. Now it has just reached $ 37 a barrel. West Texas Intermediate (WTI) is the main crude type traded on the American markets. It is currently selling for slightly more than $ 35 a barrel. In just a month, because of the large reserves, the price of oil has fallen by 17%.
The US Congress's decision to cancel the export ban for american oil has caused this equivalence of prices between Brent oil and WTI. Some months ago, Brent oil sold at a premium of $ 17 at a barrel compared to WTI.
The appreciation of the U.S. dollar encourages low prices for oil
Another factor which emphasizes this decrease is the appreciation of the U.S. dollar compared to other currencies. In the past year the difference between the U.S. dollar and Euro has been reduced significantly. The price of oil is calculated in US dollars. If the dollar is at a high level then oil will cost more for those who hold other currencies.
The solutions to this problem are complicated. A decrease in production is not expected. And if the United States should try to artificially depress the national currency in order to boost the oil trade, it will face inflation in other sectors of its economy. #Foreign Policy #Government