Supply and Demand Take Charge of Oil Prices


It would appear, now that Saudi Arabia has walked away from its role as the world’s largest oil producer, U.S. output will play a far more significant role in determining oil prices.

Since July 2014 and the sudden plunge in oil prices from approximately $105 to $45 per barrel, Saudi Arabia decided to chase market share, rather than serve in its traditional role as the regulator of oil prices, through the Organization of the Petroleum Exporting Countries (OPEC). This decision has since precipitated long term changes across the global crude oil market.

The output of the U.S now rather than Saudi producers is now significantly more influential in determining future oil prices.

Regarding demand:

Sales of transport fuels have exceeded all expectations this year leading many to establish that oil prices are well on the mend.

Recently Gasoline consumption has also bounced far higher, with U.S. drivers joining those in India,Indonesia and China in driving more often, and in some cases in less fuel efficient cars. Diesel for goods-laden trucks and jet fuel has also been in higher demand.

Regarding Supply:

Saudi Arabia, after decades of willingness to export less to control prices, decided instead to sell as much as it could. That decision, added to the supply glut U.S. production helped create, triggered last year’s bear market in oil prices. At times this year, production in Saudi Arabia has surpassed 10 million barrels per day, touching record levels. Other OPEC members have followed, according to data from the International Energy Agency (IEA).

This has now allowed the U.S. to leapfrog Russia and Saudi Arabia in oil production and therefore also increased US influence. Without a high-output market willing to step in and act as the swing producer, as Saudi Arabia once did, market forces are now in far more control.

When prices fall, producers with higher costs are likely to minimise operations, balancing supply and demand rather than relying on the Saudis to do so. That is what is currently occurring. Drilling in the U.S. has declined in reaction to falling oil prices. The U.S. oil-rig count rose by 12 to 640 in the latest week, breaking 29 straight weeks of decline.

Contact our team at Gladstone Morgan if you wish to know more about how this topic as well as countless other significant events may influence your financial position and savings.

We will be happy to help: Email:

Disclaimer: All content provided on this page are for informational purposes only. Gladstone Morgan Limited makes no representations as to the accuracy or completeness of any information on this page or found by following any link on this page. Gladstone Morgan Limited will not be liable for any errors or omissions in this information nor for the availability of this information. Gladstone Morgan Limited will not be liable for any losses, injuries, or damages from the display or use of this information. This policy is subject to change at any time.

It should be noted the services available from Gladstone Morgan Limited will vary from country to country. Nothing in the comments above should be taken as offering investment advice or making an offer of any kind with regard to financial products or services. It is therefore important to reinforce that all comments above are designed to be general in nature and should not be relied upon for considering investment decisions without talking to licensed advisers in the country you reside or where your assets may located. Gladstone Morgan Ltd is not SFC authorized. Gladstone Morgan Ltd in Hong Kong is licensed with the Hong Kong Confederation of Insurance Brokers.