Our new report investigates the causes of the oil price freefall and what the future might have in store
On June 22 last year, two tankers loaded 1.3 million barrels of crude at the port of Tobruk in eastern Libya. It was an event that signaled the end of a decade-long boom in oil markets.
Just three days earlier, benchmark Brent peaked at almost $116 per barrel, the highest level for 2014, before beginning a relentless slide that would see prices sink by more than 60 percent over the next seven months.
As market participants begin to adjust to this new reality, our recently released report, A Brief History of the Oil Crash, examines the causes of the oil price freefall and the possible consequences of the crash of this global industry.
The report, produced by Reuters News and the Thomson Reuters Commodities business, offers a readable explanation of the oil shock, supported by Reuters photojournalism and regional analysis from our reporters in the major oil exporters, including Russia, Venezuela, Canada and China.
Five defining factors of the oil crash
Explore five defining factors of the oil crash from one of the report’s chief authors, John Kemp, Reuters Senior Market Analyst.
An inevitable decline
While the reopening of Libya’s ports and oilfields – which had been closed for months by unrest – marked the oil market’s tipping point, the seeds were sown years previously.
Between 2004 and 2014 a raft of laws and government regulations were introduced in the United States and other advanced economies to promote energy conservation and reduce demand for increasingly expensive imported oil.
In retrospect, 2005 proved to be the peak year for oil consumption in those economies, preceding the biggest drop in fuel demand in history.
The birth of the shale revolution
High prices did more than just restrain demand. They were the key catalyst for the U.S. shale boom, which resulted in the fastest growth in oil production in history during 2013 and 2014.
The market is oversupplied
By 2012, or 2013 at the latest, the global oil market was on an unsustainable trajectory with stagnating fuel demand meeting rapidly increasing supply.
The price war begins
Throughout September, October and November 2014, speculation intensified about possible production cuts by OPEC members, led by Saudi Arabia, which would keep prices artificially high and allow shale to continue expanding.
However, on November 27, 2014, OPEC announced that it would maintain its combined production at 30 million barrels per day. Brent, which had already fallen to $77 per barrel by the time of the OPEC meeting, dropped another quarter to $59 over the next month as the market digested the fact that the group would not come to the rescue.
A painful adjustment for the industry
Oil prices must ultimately drop to a point at which the market rebalances – which means eliminating some of the previously forecast production growth and slowing or reversing the loss of demand. In the shale patch, producers have slashed drilling programs for 2015 and started to idle rigs, conducting layoffs.
A Brief History of the Oil Crash is the first time the commodities team has harnessed its tremendous strengths in reporting, data and photojournalism for a project on this scale.
The publication was launched via a webinar for which more than 1,100 registered, and is now available to customers via Thomson Reuters Eikon.
View some of Reuters finest photojournalism around the price-plunge
John Kemp on the 5 causes that led to oil’s decline
What does this mean for international relations?
Should history repeat itself, can we contemplate a bottom in mid-February? Maybe, but covering shorts blindly is like catching a slippery falling knife.