Krauss on March 30, 2016, in the article “Oil Prices: what’s behind the Drop? Simple Economics” attempted to explain the cause of the extreme depreciation of oil prices globally. Krauss noted that the United States oil production has since doubled forcing Saudi Arabia, Algeria, and Nigeria to seek other markets and in particular Asia. The competition increased stiffly causing the price to drop significantly. Besides, Canada and Iraq have been increasing production as well as Russia despite its economic woes. Apart from that, in Europe and other developing countries, vehicles are becoming energy efficient reducing the demand for fuel. However, Krauss was quick to note that there was an indication that production may fall as evidenced by reduced oil exploration.
Moreover, Krauss pointed out that motorist were the biggest gainers from the oil price drop. The losers are oil producing countries that are forced to sell oil at low prices. There has been pressure among OPEC to cut down production to stabilize the prices in vain. As a result, allegations of conspiracy have emerged claiming that Saudi Arabia wants to hurt Iran and Russia. Krauss concluded by stating that oil prices may not recover anytime soon due to the oversupply of oil.
I agree with Krauss that oil prices dropped due to demand and supply forces. When there is an oversupply of a commodity, the prices tend to go down. In this regard, the USA's expansion of oil production was the cause of the shift since it had had been among the leading importers of oil from OPEC countries.
Although OPEC had control on oil production in the previous times, they seem to have lost it. Agreements to cut production in the past involved distrust, and as a result, no country wishes to take the risk because it may lose it already shrunk market share. It is from this point of view that I concur with the conclusion of the article that oil prices may not recover anytime soon.
Works cited
Krauss, Clifford. Oil Prices: What’s Behind the Drop? Simple Economics. The New York Times 30 March, 2016. Accessed on April 7, 2016 from <http://www.nytimes.com/interactive/2016/business/energy-environment/oil- prices.html>
