What Is the Oil Freeze and Will It Happen?

Can oil freeze? Technically, no. But that’s not the meaning of the ‘oil freeze’ we’re talking about. The oil freeze is a potential halt in the production of oil. Why? It’s an attempt to stop prices dropping with no base limit. Read on for a summary of the oil freeze, including the reasons behind it, potential effects and whether it will go ahead.

What’s wrong with low oil prices?

After steadying between 2010 and 2014, oil prices have dropped to consistently less than 50 US dollars per barrel over the last two years. The effect, at the moment, is that oil companies are cutting jobs and cancelling planned explorations. Finding oil resources is obviously not as valuable when the oil itself is dropping in value.

Low oil prices sound good, but actually when they get too low it becomes damaging for oil-reliant countries like Algeria, Venezuela, Iraq and Kuwait. Nearly half of the gross domestic product for these countries comes from the production and exportation of oil.

Why are prices falling?

The simple answer to why the oil prices are falling is the age-old economics of ‘supply and demand’. With the United States almost doubling over the last decade, other countries have been forced to take their exports elsewhere. It means there is now several different nations trying to sell oil in the same places. Naturally, they have to lower the prices to compete with one another.

Demand might also have something to do with it. Europe in particular are looking to alternative energy sources like wind, solar and biofuel. So while supply is growing, demand could actually be falling.

Will it happen?

The issue at the moment is getting countries to agree with the freeze plan. If it goes ahead, it will surely benefit all of them, but individually they are apprehensive. Iran has recently come out in support of the plans, albeit cautiously, to stabilise the market with an oil freeze. But it’s larger figures like Saudi Arabia and Russia that the deal will depend on.

Cutbacks

The falling oil prices, as previously mentioned, are leading to staff cuts at oil firms as well as bigger workloads for the remaining staff and possible cuts in training. Unfortunately, this leads to poor working practice. Measurements are becoming inaccurate and regulations are not always being met. ‘Who is Manning the Cash Register?’ looks at the difficulties this can cause and the implications of companies and their staff.