Why oil prices fell below 40 dollars in August 2015

  • 1 The US is producing more oil

    The US is producing much more oil than usual because of the new efficient mechanisms applied to the drilling technology.

  • 2 The US is increasing the number of rigs

    According to the Wall Street journal, oil-field-services company Baker Hughes Inc. reported that the number of rigs drilling for oil in the U.S. rose for the fifth straight week.

  • 3 Weakness in the global economy

    Some analysts believe that the fall in oil prices reflects weakness in the global economy. As the economy slows down, companies and countries consume less oil and so the price goes down.

  • 4 Fears of a slow down in the demand of China

    China is the world's second largest oil consumer. As investors & speculators became afraid that the economy in China might be slowing down, they started selling their oil futures thus pushing the price down further more.

  • 5 OPEC countries are not cutting down the supplies

    OPEC countries didn't want to reduce the amount of oil they produce in order to not lose market share. As a result, the supplied oil didn't decrease and this pushed the price further down.

  • 6 The supply is more than the demand

    The numbers reported by the forecast made by the International Energy Agency have shown that an over-supply may remain until the end of 2016.

  • 7 The rise of oil inventories in the USA

    The US government reported a rise in it's oil inventories. This news pushed the prices further down, as it reflected the over-supply in the market.

  • 8 The end of the summer season

    As the summer ends, the demand for oil goes down as people use less gasoline. The expectations that this factor will add to the demand problems of oil has pushed the price further down.

  • 9 Saudi Arabia seems to have no intentions to cut production

    Saudi Arabia, one of the largest oil producers in the world, have shown no intentions of cutting oil production. Saudi Arabia also has a large amount of foreign reserves that can help them sustain prolonged periods of low prices.

  • 10 China's (PMI) numbers fueled the fears over the global economy

    The Chinese private Caixin/Markit manufacturing purchasing managers' index (PMI) dropped to 47.1 from 47.8 in July. A reading below 50 is a sign of contraction. These numbers fueled the fears over the growth of the Chinese economy.

  • 11 Bearish reports are being released

    Many large banks and analysis produced reports that expect oil prices to drop to $30 a barrel. The reports added to the bearish sentiment of oil prices.

  • 12 Some people believe it has something to do with politics

    Some people believe that the drop in oil prices is derived by the USA to put pressure on Russia. According to this theory, the US does that by producing more oil to create an over-supply in the market.

  • 13 The slow economy in the Euro zone

    The slow economy in the Euro zone has contributed to the world's low demand of oil, putting further pressure on the price.