The oil industry is full of booms and busts. Prices typically rise during periods of global economic strength and as demand outpaces supply. Crude oil will fall when the reverse is true, and demand cannot keep up with growing supplies. Meanwhile, supply and demand are driven by a number of factors:

  • Changes in the US dollar
  • OPEC (Organization of the Petroleum Exporting Countries)
  • Production and inventory supplies
  • The global economy
  • Deals and treaties

Notably, 2015 offers an interesting example of how the five factors can conspire to send prices lower. At that time, the price of crude oil fell to less than half in less than a year, reaching lows that people had not seen since the last global recession. Many oil executives believed it would be years before oil returned to $100 per barrel. As of mid-2019, it looked as if they were right and some of the circumstances surrounding the 2015 drop continue to plague the commodity. 

The Strong US Dollar

The strong U.S. dollar was the main driver for the price decline of crude oil in 2015. In fact, the dollar was at a 12-year high against the euro, leading to appreciation in the U.S. dollar index and a reduction in oil prices. That put the market under a lot of pressure because commodity prices are usually in dollars and fall when the U.S. dollar is strong. For example, the surge in the dollar in the second half of 2014 caused a sharp fall in leading commodity indexes.

Organization of the Petroleum Exporting Countries (OPEC)

Another leading factor in the sharp price drop of crude oil in 2015 is that OPEC, a cartel of oil producers, was unwilling to stabilize or otherwise "prop up" oil markets. Prices of OPEC’s benchmark crude oil had fallen a whopping 50% since the organization decided against cutting production at a 2014 meeting in Vienna.

Global Production

Crude futures declined in late-September 2015 when it became clear that oil stockpiles were growing amid increased production. The Energy Information Administration (EIA) reported on September 30, 2015, that U.S. commercial crude oil inventories rose by 4.5 million barrels from the previous week. At almost 500 million barrels, U.S. crude oil inventories were at their highest level in at least the last 80 years.

Total oil production by the end of 2015 was expected to increase to more than 9.35 million barrels per day—higher than previous forecasts of 9.3 million barrels per day.

The Economy

While supply became increasingly abundant in 2015, demand for crude oil was decreasing. The economies of Europe and developing countries were weakening, and at the same time, vehicles were becoming more efficient, which caused the demand for fuel to lag. China's devaluation of its own currency suggested that its economy may be worse off than expected. With China being the world's largest oil importer, that was a huge hit to global demand and caused a negative reaction in crude oil.

The Iran Nuclear Deal

Lastly, the Iran nuclear deal was a preliminary framework agreement reached between Iran and a group of world powers. The framework sought to redesign, convert and reduce Iran's nuclear facilities. Iran was allowed to export more oil because the deal removed Western sanctions. Investors feared it would add to the world's oversupply of oil, dragging it down even more.