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The pace of life in the oil industry

is determined solely by the price the product commands. How much business you can expect in the coming months depends on the next moves on the Middle East chess board, combined with development in Asia and America.

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Firstly it’s important to retain perspective on the markets. Prices enjoyed a surge back in 2004 when they rose from around $25 to $40 and then $50 in the space of a year. In 2007 it hit $99.29 a barrel and we continue to reap the benefits of that boom today.

As Wall Street analysts Sanford C Bernstein report, non OPEC-countries are paying around $104.50 a barrel, so production costs are simply too high for prices to fall far. For the foreseeable future, barring an event on the scale of biblical catastrophe, business will carry on as it is today.

The recent fall in oil prices – a four year low – is a direct consequence of the supply and demand crisis currently consuming the market.

Strong production is coming from the US where the International Energy Agency expects the country to continue its upward trend of production, thanks to the shale oil revolution. It goes as far as to predict it will overtake Saudi Arabia and Russia to become the world’s largest oil producer. (When that happens and by how much, though, has produced disparate estimates that depend on uncertain factors ranging from progress in drilling technology to the availability of financing and the price of oil itself.)

This is in itself not an issue; however when coupled with the reduced confidence the International Monetary Fund has in global growth – it shaved forecasts from 3.4% this year to 3.3% – the toxic combination is clear to see.

During times like this, it’s traditionally expected that the Saudis will take the lead and pull back on production. But this time Saudi Aramco bucked tradition and stunned markets by announcing it was cutting prices by around $1 a barrel to Asia as well as by around 40 cents a barrel to the US.

The result was that brent crude traded at $86.57 a barrel – a figure not seen since 2010. US light crude fell to $82.50, close to a two year low.

John Kilduff of Again Capital says it’s an attempt to flood the market, sink their competitors and allow them back in the driving seat. All eyes will be on next month’s OPEC meeting when we’ll find out what countries like Iraq and Iran intend on doing: cut prices or production?