It’s Happening Again: Russian, Saudi Arabian Oil Ouput To Be Frozen

0
petroleum refinery
Oil refinery. Image obtained with thanks from Iraq Business News.

Back in 2008, I witnessed the end of cheap oil as we know it — Oil prices surged to $147/barrel in November. That was when talk about alternative energy sources really took off. Oil demand plummeted, causing crude prices to fall from $147/barrel to $33.87/barrel between the months of November and December 2008.

petroleum refinery
Oil refinery.
Image obtained with thanks from Iraq Business News.

Petroleum prices were low the following year, and there was a severe economic recession underway. The recession likely dampened demand (and the OPEC economies revenue), and OPEC nations were convinced that 2009’s low oil prices had hit their economies hard (which is possible, due to the fact that revenue from oil must have declined). Their remedy was to slash oil production by millions of barrels to inflate oil prices. They did this multiple times and oil prices eventually rose. By 2011, oil prices averaged more than $100/barrel.

An important lesson to learn from this is that due to the fact that it was a supply glut that caused 2009’s low crude oil prices, prices are bound to go back up eventually. A supply glut is an excess. Therefore, it can’t last forever. This is why people need to decide on a gas/diesel conservation plan and stick to it.

Now history is repeating itself yet again. Oil prices tumbled over the course of 2015, and continued all the way down to $31/barrel in January 2016, the lowest since December 2003. Some of the largest oil suppliers including Russia and Saudi Arabia have decided to freeze oil output at January levels (Qatar and Venezuela agreed to participate too).  Oil prices are likely to remain low for months to come, but they will inevitably rise back up to their old levels.