The price of a barrel of oil lost about half of its value during 2014 and the trend is expected to continue in the first months of 2015. Some experts are predicting that oil is heading towards the most significant price drop since 2008. Slowing demand in China and booming U.S. shale production have contributed to a glut in the oil market that is not expected to be resolved anytime soon. Many of the hardest hit companies are the ones that investing in expensive methods of obtaining oil, notably those that are involved in the Canadian oil sands and involved in fracking.
Much of the blame for the drop in price is being heaped on OPEC. The oil cartel refused to cut production to boost prices earlier this year because some members were concerned about losing their market share. In the past, OPEC has artificially inflated oil prices in times of supply abundance by reducing the amount of oil released to the market. However, heightened competition from U.S. suppliers have made some of the oil producing nations afraid that their market share will be eroded if they reduce supply. OPEC reportedly will continue to refuse to cut production unless the other players in the market agree to cut their production as well.
The abundant supply in the market is good news for consumers around the world. In the United States and in China, consumers have had more money to spend in other sectors of the economy because they are paying much less to power personal vehicles, trucks, and trains. However, while the drop in oil prices is good news for the U.S. and China, it is bad news for the countries that depend on high oil prices to stabilize their economy, notably Russia, Venezuela, and Iran
It has been estimated that Iran is losing about $1 billion a month due to the lower oil prices and is now considering allowing the men in the country to buy their way out of mandatory military service. The Russian economy is in an economic slump and may even enter a depression next year if oil prices remain low. Venezuela is finding it difficult to continue the socialist policies of former president Hugo Chavez and will have to plug an enormous hole in its budget next year. While the future is unknown, it is unlikely that oil prices will return to their former heights anytime soon.