The Oil Supply Mystery

Oil prices sank to six-year lows in August as a supply overhang grew and concern deepened over the health of the global economy, especially in China. Oil prices have since stabilized around $50 per barrel but a production gap has emerged between OPEC oil producers and the rest of the world’s oil producers, including the United States. Why would some oil producers continue pumping oil when global demand is low and oil prices have fallen into unprofitable levels? There seems to be a powerful undercurrent in this volatile time in global energy history. As you can see from the chart below , world GDP has declined steadily since 2010 and continues to do so. A slowdown in global economic output has decreased global demand for commodities, including oil. The global commodities complex has seen dramatic price declines and the world commodities index is currently at a 16-year low.