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Oil Prices Go Down, Down as Supply Grows and Demand Slips

Image: Oil Prices Go Down, Down as Supply Grows and Demand Slips
A gasoline pump rests in the tank of a car in San Anselmo, California. (Justin Sullivan/Getty Images)

By    |   Friday, 19 Sep 2014 08:12 AM

Oil prices rose to $112 a barrel in June as the Islamic State swept into power and stole headlines across the globe, but as the summer dragged on prices fell, slipping below $100 in recent weeks.

According to The Wall Street Journal, the basic rules of supply and demand explain the trend, as weekly government data showed an unexpected rise in domestic oil production and decreased demand amidst an economy that continues to sag.

"Frankly, the global economy is slow. Demand is low, and so there's very little growth in demand. And so, supply is strong, and demand is fairly weak," Robin West, a senior adviser at IHS Global Insight, told NPR.

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On the supply side, "There's another 3 billion barrels a day that's coming into the market and staying in the market," he said, noting booming shale oil production in North Dakota and Texas. "This has really changed the global supply-demand balance very substantially"

Prices fell as low as $93 a barrel this week after the Federal Reserve shied away from higher interest rates and other moves that would boost the dollar. That's led many refineries to stay open in September and October, which is usually reserved for site maintenance.

Many have wondered why oil prices have drifted down as unrest continues to grow in the oil-rich Middle East and Russia.

Levi said it's because Syria's oil production is minimal, and the conflict is somewhat predictable in its instability as the civil war has been raging for years. Libya is in a similar situation, having been destabilized in 2011 with the assassination of prime-minister Muammar Gaddafi.

Last but not least, U.S. sanctions against a misbehaving Russia won't come to roost in the near future, and Vladimir Putin isn't likely to turn off the oil spigot anytime soon, as it continues to fund his invasion of Ukraine.

Fadel Gheit, managing partner and head of oil and gas research at Oppenheimer & Co., thinks an increasing global oil supply bolstered by improving extraction technologies will continue to mitigate skirmishes in the Middle East and Eastern Europe.

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Oil prices rose to $112 a barrel in June as the Islamic State swept into power and stole headlines across the globe, but as the summer dragged on prices fell, slipping below $100 in recent weeks.
oil, prices, down, supply, grows
373
2014-12-19
Friday, 19 Sep 2014 08:12 AM
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