The price of Brent Crude has fallen by more than half—from $115 per barrel in June to around $40 last week—and the financial firm Goldman Sachs predicts it could drop below $20. This decline follows a period of relative stability since 2010. At present, the nominal price is nearing its post-crisis low from March 2009 (Chart 1). This sharp price collapse has sparked debate over the factors driving this steep decline. Oil Price Determination:- The price of oil is influenced by both actual supply and demand as well as market expectations. Energy demand is closely tied to economic activity, with seasonal spikes occurring in the winter across the northern hemisphere and during summers in countries reliant on air conditioning. Supply, on the other hand, can be disrupted by weather conditions that prevent tanker loading and by geopolitical instability. When producers anticipate sustained high prices, they invest in expanding production, which—after a lag—boosts supply. Conversely, prolon...
