An online article on the New York Times explains the factors that have led to decline in the oil prices. One reason is an increase in oil production in the U.S. Like the U.S., other oil producers such as Russia, Canada, and Iraq have also been enjoying rising levels of oil production. The oil prices have also been falling due to weakening demand for oil in Europe and other emerging economies. Moreover, vehicles are becoming more fuel efficient which also weakens quantity demanded for oil. OPEC has also refused to cut oil production even though some members want OPEC to cut oil production but major producers such as Saudi Arabia and UAE etc. are refusing to do so .
The article employs the concept of supply and demand to explain the decline in oil prices. The price of oil has been declining because the quantity supplied of oil has gone up for several reasons. First of all, the U.S. has been producing more oil than ever. Similarly, other oil producing countries such as Russia also continue to pump more and more oil. The quantity demanded of a product and its price has negative relationship. The downward pressure on oil price is also coming from the weakening demand for oil in Europe and other emerging economies which are still struggling. Thus, both the increase in quantity supplied and the decline in quantity demanded explain the decline in oil prices.
The demand for oil is also weakening due to advancements in automotive technologies which have made vehicles more efficient. The article doesn’t mention it but there are also other factors that are reducing the demand for oil. One factor is growing climate awareness. Similarly, the emergence of substitute technologies to vehicles with gas engines such as electric vehicles is also hurting the demand for oil. The demand of a product and its complementary goods is negatively affected by an increase in demand of a substitute product. In this case, the rising popularity of electric cars has been hurting cars with traditional engines that run on fossil fuels.
Krauss, Clifford. Oil Prices: What’s Behind the Drop? Simple Economics. 2 February 2016. 3 February 2016 <http://www.nytimes.com/interactive/2015/business/energy-environment/oil-prices.html>