The Effect of Plummeting Oil Prices in the Energy Industry: A Study on Exploration, Drilling and Pipeline Projects

Abstract

The energy industry, or energy alone, is a crucial component in our daily lives as humans, but also for our global economy which is generally energy-reliant. Specifically oil, has played an important role in global economies but also for countries’ economies separately and has at times greatly influenced geopolitical dynamics. For some countries, oil-exporting countries for example, oil may comprise the main source of income and for others it may constitute a vital component for a healthy market. Whatever the case, oil has is key for economies and has the potential to significantly influence political dynamics. During the past two years, oil prices have witnessed record lows which were unseen since the last oil crisis in 1986. Although low oil prices was have been largely foreseeable, the extent to which they dropped was something the world was unprepared for. It not only has jeopardized whole economies, but also the positions of many key players in the oil industry, namely explorers, driller and transporters. The causes of what this paper will name the ‘oil crisis’ have been the subject matter of much speculation. It is fair to say that such extreme fluctuations of any commodity are rarely the result of one cause alone, but rather due to a chain of causes and subsequent reactions. In our case, there are three main, but not sole, identifiable factors that have a direct link to the recent record slum in oil prices. These are: the excess supply in what is an oversaturated market, the decrease in demand of oil and the increase of the U.S. dollar (USD) value.