Oil Prices

Over the past year, oil prices have experienced the largest drop since the 2007-2009 recession. Throughout the mid-2000s oil prices fluctuated around the psychological benchmark of $100, whilst today it seems that $30 per barrel is the new reality. Indeed, according to market forecasts¹ for 2016, companies and investors are preparing for another year of strain.

Figure 1. Weekly crude oil prices: WTI, US$ per barrel
Source: U.S. Energy Information Administration

There are several prominent reasons why further drops in oil prices can be expected in the near future. First, this price drop is very different from the demand-induced oil crisis of the recession.

One of the unexpected triggers was caused by OPEC, which increased oil production at the beginning of the drop in oil prices, rather than decreasing it. Meanwhile, producers in the U.S. and Russia proved much more resilient than expected. For example, despite the reduction in U.S. oil production in spring