In the second half of 2014, the oil market experienced a powerful downward price adjustment which was sustained throughout 2015. There are several long-term supply and demand forces in play, as well as some shorter-term response factors, that make for a very difficult mix to analyze going forward. On the supply side, there are the technology-driven improvements in extraction techniques that ignited a production boom in the United States back in 2006. On the demand side, there is the huge shift in the global growth environment from an emerging market boom period in the early 2000s to a sluggish growth period after the 2008-2009 Great Recession. Also, technology has been steadily making transportation considerably more fuel efficient. Shorter-term factors include the time-lagged feedback loops and behavioral responses to producers adjusting to a lower oil price environment, as well as policy responses such as the lifting of the U.S. ban on crude oil exports.
Our forward-looking analysis of the long-term trends in the crude oil market, including sluggish global growth, continued advances in transportation fuel efficiency, and extraction technology improvements, suggests that the era of relatively low prices could last for many years. In hindsight, what seems remarkable is that oil prices stayed as high as they did for as long as they did, before breaking down in the second half of 2014.
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