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dcanswere...

M$2.00 Funded By Mahalo ? | April 17, 2009 07:49 PM

What is the reason for the massive drop in oil prices from their previous high?

As I understand it, demand did not significantly decrease, and supply did not significantly increase. What was the cause of such a huge drop in the price of a critical commodity?

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interzone

April 17, 2009 08:54 PM

The oil prices are not determined by standard market forces, i.e. the demand/ supply dynamics. Instead, geopolitics and speculation are decisive factors here. This means that the price of oil was superficially high, to begin with.

However, high oil prices are unsustainable in the long run, as one Sheik Yamani, the Saudi oil minister during the '70s and '80s crisis, once said:

"If we force Western governments to invest heavily in finding alternative sources of energy, they will"

This quote is the key to understanding current situation - the most important reason for recent drop in prices is a long-term strategic decision made by major economies to increase investment in alternative sources of energy. In other words, people are beginning to realise that the age of oil is coming to an end, and that affects the prices.
Source(s):
http://www.portfolio.com/views/columns/economics/2007/12/17/Why-Oil-Prices-...

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