Oil prices : What's happening ?

1)  Rationale for lower prices in the past       

         Oil prices remained lower for the past couple of years. The primary reasons for the oil                          prices to be in the lower zone were " Hydraulic Fracturing "  & " Horizontal Drilling".

     a)   " Hydraulic fracturing "

               It is the technique  by which cracks are created in the rock with the help of a pressurized                      liquid which results in the increase flow of oil or natural gas. 

     b)   " Horizontal Drilling"

              Traditionally, the oil well was drilled vertically which resulted into less quantity of oil,                          however nowadays well is drilled horizontally which results into more supply of oil.

2)  Relation with economics

        In economics, it is said that when supply exceeds demand , price of a good deflates. Therefore,  

       oil production with no cuts from OPEC, U.S., Russia etc. increased the supply and                                reduced demand especially from China, lowered the prices of oil.            

3)  Oil prices : High or Low better?

        There are few nations in the world which want higher prices such as Saudi Arabia, Iran, Iraq,               Kuwait, Qatar, Venezuela, Algeria, Nigeria ,U.A.E. because these nations have oil reserves and           their economy depend to a large extent on oil. On the other hand, nation like India want lower             prices because it is an importer of the oil. Airlines industry will be in boom when the oil prices            are low because jet fuel constitutes the major operating cost.

4)  Current status on this hot issue

        OPEC and several other Non-OPEC nations including Russia have agreed to cut production and         thereby the supply in the global market . OPEC nations and Russia are oil exporting countries.             Their substantial portion of revenue is dependent on oil.   

  

5)   Academics point of view       

        Nash equilibrium means that when two or more players are involved in a decision making                   process, stability will be achieved when no player would want to change his strategy. Hence,               the present situation suggest that oil producers can cheat each other and increase the production,         thereby the profit.

        Thus, future although uncertain, one can assign a probability to different events that can                       happen. Looking in the past, the highest probability can be assigned to an event "with oil prices           falling in the near future".