The drop in prices: Why is the oil rate dropping?

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Oil is currently experiencing, and has been for some months now, a strong falling trend, both Brent and WTI are currently registering a record low that has not been seen for over 6 years. But why is this price drop occurring, what are the reasons for it?

This is what we propose to look at closely here with explanations on the drop in the price of black gold, as well as our forecasts and some advice for making a profit from this situation.


The reasons for the fall in the oil price:

Since March 2014, the price of oil has fallen by nearly 60%, with an acceleration of this drop since December 2015 following the decision by OPEC not to change its production despite the global excess in supply.

The major rise in the supply is mainly due to the new production from Iran. The western sanctions were lifted in July 2015 following an agreement passed between Tehran and global economic powers which basically enables this producing country to sell its oil on the market now. This return reached its apogee at the beginning of 2016.

Although an excess in the oil production leads, logically speaking, to a drop in the price, the OPEC has been unwilling to reduce their production quotas, or even envisage a new objective. It should be noted that OPEC has already passed the quotas previously fixed at 30 millions of barrels per day with production that is currently around 32 million barrels per day.

Certain market specialists believe that this decision of OPEC has the objective of causing a drop in prices to challenge the competitiveness of American shale gas and American oil, as we know that the oil fields in the United States are only profitable above a certain price per barrel.


How is the price of oil likely to change?

Like many other investors, you are no doubt also wondering if this drop in price will continue through 2016. According to the analysts, there is a strong possibility that the price of black gold will pass below the 35 dollar level, under pressure from OPEC. You can therefore benefit from this expected fall by surfing on the trend by taking buying positions, either through the use of CFDs.

But the price of crude oil cannot continue to fall indefinitely. This is why certain investors benefit from the current situation to take long term positions at a low price and wait for the next rising trend. If you are thinking of following such a trading strategy, be sure to place stop orders that are sufficiently low and cover your positions with short term selling positions.

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