The massive affect the oil drop has caused
by Sebastian Quezada (Staff Writer) – 2/12/16
The crude oil market has recently seen it’s biggest downturn when the price for oil fell to as low as twenty-five dollars a barrel. This has been the market’s biggest crash since the 1990s according to The New York Times.
While the price in oil might be down for consumers in the United States, the top major oil producing countries such as Saudi Arabia, Venezuela, Russia, Nigeria, and Iraq are suffering from this major crash. The reason behind the issue is due to the demand and supply in oil, the U.S. is producing more oil than it has in past years, which has led to the decline in oil trade from other countries. These oil producing companies had to look for another market to sell their oil in, and they all landed in China’s market.
The bad news about this is that “Chinese stocks have fallen into a bear market territory and affected oil companies along the way,” states CNN reporter Jethro Mullen. Wanting to sell their oil to China, these companies were forced to bring down their prices in an extreme way that would lower its value of oil in order to sell in the Chinese market.
The Organization of the Petroleum Exporting Countries (OPEC), whose job is to distribute oil to major oil producing countries, is another reason why the prices have dropped. OPEC has produced a surplus of oil in the past year, which means that oil had to lower its prices, but it also meant bad new for other oil producers. “They don’t want to cut production in order to raise the prices of oil higher, and it is causing other countries to lose more and more money,” states The New York Times.
It’s not just foreign countries who are being affected by this, it is also the U.S. Although they are producing more oil than ever, the oil is still cheaper in other countries, which has led to the government buying oil from foreign companies.
This has caused oil companies to shut down and “an estimated 225,000 oil workers have lost their jobs,” states reporter Clifford Krauss. This has hurt companies such as Chevron, Royal Dutch Shell, and BP who “have all announced cuts to their payrolls to save cash and not sell any more parts of their companies,” reports Krauss.
Student drivers have also seen the drop in prices go down, making them excited but also worried. Senior Jason San Jose believes, “It is definitely good that oil prices have gone down for the everyday driver, but I know this has to do with an issue involving companies because there is no way it could drop this low.”
The oil prices are not looking to go up anytime soon because “the oil production is not declining fast enough in the United States and in other countries,” states Krauss. The extreme drop in price has left no cushion in the market in case of another crisis, which means the faster they resolve this issue, the better it is for everyone else.