Black gold is being produced more than ever, but the need for it is too small

In the world, 96.3 million barrels of oil are produced daily, according to last year’s data, while daily demand amounts to 94.5 million barrels of oil. Black gold is being produced more than ever, and the need for crude oil is not keeping pace with the increased supply. Even heightened geopolitical tensions in the Middle East have not managed to raise oil prices above $35 per barrel.

According to Bloomberg, oil production has doubled in the U.S. in recent years, and OPEC, particularly Saudi Arabia, is also increasing its share. After the lifting of sanctions on January 16, Iran has returned to the market, literally flooding it with its stored oil, and they also plan to increase supply by half a million barrels per day.

Although production has not yet significantly declined, investment in the oil business has, and according to the consulting company Wood Mackenzie, there are currently 68 projects worth a total of $380 billion on hold worldwide.

The reason for the price drop is also the slowdown of the Chinese economy, as well as the European economy, but it should also be taken into account that vehicles are becoming increasingly energy-efficient.

An oversupply and demand of 1.5 to 2 percent, as estimated by INA, may not seem significant, but it is enough to cause a price drop, and in the meantime, oil companies must survive.

Investments in research and production are being postponed, and a large number of people have lost or will lose their jobs. Only Shell has announced the layoff of 10,000 people and a sharp drop in profits, the largest in the past 13 years. From $19 billion in 2014, last year’s profit for that company was only $3.8 billion.

British Petroleum recorded a loss of $5.2 billion, at the same level of loss as in 2010 after the oil spill in the Gulf of Mexico. This year, they will lay off a total of 7,000 people.

Exxon also achieved its weakest result in the last 10 years, halved compared to 2014, and that company also plans drastic cost-cutting.

Chemron, on the other hand, is laying off 4,000 people, after losing half a billion dollars in just the last quarter of 2015.

Analysts estimate that the price of oil in 2016 will fall from $57 to $50 per barrel.