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Home Business News

New IMF Report Explains The ‘New Normal’ For Crude Oil Prices

Chacha Wabara by Chacha Wabara
October 31, 2016
in Business News
Federal Government Will Reduce Contracting Cycle In Oil industry To Six Months
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Given the current stability being enjoyed by the price of crude oil in the international markets, some oil-based economies may be beginning to dream of the commodity achieving the pre-2015 figures that served as long-time peaks for crude oil. For them, the cooperation among OPEC member countries and non-OPEC exporters towards a production cut represents further reason for them to dream.

But, according to the IMF, such dreams may just remain that-dreams. The international financial institution at the International Monetary Fund (IMF) Global Economy Forum, said that crude oil prices would not return to the dizzying heights achieved in 2014.

Giving reasons for this projection, the IMF insisted that with the production cuts and lower production levels from reduced investment in crude oil sectors, the demand for the product will continue to be eclipsed by the supply leading to low prices.

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A major reason for this development is the boom of shale-oil production, which has risen to about 5 million barrels daily, thereby significantly increasing oil supply. Production from drilled but uncompleted wells, unlike conventional oil wells takes a matter of weeks and is far harder to predict than conventional wells. If their development continues, they may render the production cut meaningless.

Another significant factor is the reduced demand for oil and energy globally due to financial difficulties on a global scale. “While China accounts for just 15 percent of world oil consumption, its contribution to oil demand growth is significant because its economy is growing much faster than those of advanced nations. Further slowdowns in emerging and advanced economies can change the demand picture significantly,” IMF said.

Oil-dependent countries are therefore advised to wake up to the reality that current prices may just be the ‘new normal’ for oil.

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