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Cheap Oil: For How Long?

16th Dec 2014

National news sites have all been marvelling at the wonderment of reduced oil prices. We’ve been rushing to the pumps, filling up whilst it’s still cheap. The first question we should be asking is: Why has there been a sudden drop in the price of oil?

“Four things are now affecting the picture. Demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels. Second, turmoil in Iraq and Libya—two big oil producers with nearly 4m barrels a day combined—has not affected their output. The market is more sanguine about geopolitical risk. Thirdly, America has become the world’s largest oil producer. Though it does not export crude oil, it now imports much less, creating a lot of spare supply. Finally, the Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb production sharply, but the main benefits would go to countries they detest such as Iran and Russia. Saudi Arabia can tolerate lower oil prices quite easily. It has $900 billion in reserves. Its own oil costs very little (around $5-6 per barrel) to get out of the ground.”The Economist

This demonstrates that there is more than one factor that affects the oil market, which is true for every market. This could mean that prices might remain lower for longer due to the four factors above, however, this is very uncertain. We are easing our reliance on oil as one of the factors is our use of other fuel sources. These of course could still be harmful to the environment but less so than oil. Therefore, it shows we are heading in the right direction.

What is next? /How long will it last?

First of all this cannot be easily predicted. Of course there are factors to be considered, like supply and demand, economic stability, political discourse and many other factors. However, if prices keep falling this could affect the renewable industry as people could revert back to oil. It seems that as oil prices become lower people are happier, as it means that their money can go further.

Could we see a return to oil?

It would be unlikely that we will revert back to oil after the sheer amount of investment we have placed in renewable. Sooner or later the price of oil will rocket back to where it was previously. This could be due to people buying more when prices are low, decreasing the amount of supply, which would increase the price. Therefore, it is unlikely we will go back to oil during this period of price decline, as it may be short lived. We all must remember that oil will not last forever and as materials become scarcer, they will more than likely become more expensive.

What can you do?

We all need oil in some way or another in our current lives. Everyone should be focusing on a sustainable way of life. You can start by being aware of how you use energy and oil and then act upon that awareness to reduce your own consumption. It’s not just down to one of us to shape the energy and environmental future of the United Kingdom, all of us will need to play our part. Do your part today, because tomorrow may be too late.

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