Falling oil prices: Causes, consequences and policy implications

Following four years of high stable prices at about 107 $ per barrel, crude oil prices have fallen sharply since summer 2014 and are projected to stay at low level for an extended period. There are multiple factors which are being considered behind this plunge in the oil's prices. Most observers have conjectured that domestic oil boom in the United States and Iraq is the major cause for the falling oil prices. Some have suggested that a major shock to oil price expectations occurred after the November 2014 meeting of OPEC, when they did not cut production despite the steady increase in non-OPEC oil production. In the first part of the publication, we quantitatively analyzed the effect of various factors on the oil prices and then we studied the contribution of geopolitical strategies of US and Saudi Arabia towards this oil crash. We conduct comparatively analysis of the recent drop in oil prices with previous incidents up to 1996. We than show that the demand and supply formula cannot be implemented to the current oil plunge. We studied the economic and financial consequences of the current oil bust. Lastly the paper discusses the projections of oil prices.