The main reasons for plummeting crude oil prices are principally increasing US shale production and falling demand from China and Europe. The crude oil prices have declined for about 55% since June 2014 due to sluggish global demand and rising shale production from the US. In the international diplomatic arena, it is observed that "when U.S.A sneezes, the whole world catches cold". But in the energy industry, same can be said about the Kingdom of Saudi Arabia, the largest exporter of oil in the world. Saudi Arabia has about 16% of the world's proven oil reserves and maintains the largest crude oil production capacity in the world.

Therefore, their prices and production outputs go a long way to influence the global oil prices.The country's influence in moderating oil prices through its pricing policies and releases of its production outputs into the market is enormous. That is why the decision for the Kingdom to reduce its selling prices to the U.S.A will definitely push the prices to $47per barrel in January, 2015 from $103 at the beginning of 2014.

PRICE "WAR" BETWEEN SAUDI'S OIL AND USA'S SHALE It is apparent this price reduction of oil is in response to the USA booming shale production domestically. New technology has made it possible for the shale oil production in USA. Horizontal drilling and Hydraulic fracturing in underground shale rock have boosted output by 66% over last past five years. Drilling of shale has therefore been considered by USA as the alternative to the imported conventional oil from the Kingdom of Saudi Arabia. The shale production in US has increased immensely by approximately 12.35 million barrels per day in 2013. An increase of 35% production levels since 2009. As a result, the United States of America has already stopped importing crude oil from Nigeria. It has reduced its overall crude oil imports by more than 3.1 million barrels per day since peak shale production in 2005. It is instructive to underscore the fact that the US imported only 878,000 barrels from Saudi Arabia in the month of August last year.

SAUDI'S PRICING STRATEGY Consequently, the Saudi's pricing strategy is therefore aimed at winning back it's market share and discourage further investment into the shale production in the US. By lowering the oil prices to the US, it aims at squeezing out shale companies from US since it may no longer be viable to continue. According to Saudi's Oil Minister, Ali Al--Naimi, their desire is to stabilise their oil exports to the US market at an average of 1.4 million to 1.5 million barrels per day this year.

This is due to the fact that Saudi Arabian crude is the cheapest in the world to extract because of its location near the surface of the desert and the size of the fields, which allow economies of scale. The operating cost (stripping out capital expenditure) of extracting a barrel in Saudi Arabia has been estimated to be around $1-$2, and the total cost (including capital expenditure) $4-$6 a barrel. It is therefore clear from the above costings that Suadi's oil can still be profitable even if the price fall to $10 per barrel. However, in Nigeria which has almost similar characteristics to Ghana's oil fields, production in ultra-deep water fields can reach $30 a barrel compared with onshore costs of around $15. If the trend of falling prices continues, it would be huge disadvantage to the economies of these countries.

WEAK DEMAND FROM ASIA AND EUROPE An equally important factor in the decline of the crude prices globally is related to weak demand from Asia and Europe. The slow economic growth has affected their appetite for crude oil demand. For instance, China's demand growth of 6.7 percent in 2011, dips to 3.4 percent in 2012, and further decline to 2.5 percent last year. China is a trading partner to about 30 countries and its decline affect those partners. It is evident from this that high economic growth triggers high demand for crude oil with its consequential high prices.

More so , in Europe, the Organization for Economic Cooperation and Development(OECD) countries have also witnessed slow economic growth. These OECD countries have reduced their expectations for economic growth through 2015 after their assessments show that in the last six months in 2014 the gross domestic product (GDP) fell in Germany and Italy and almost stagnated in France.

Meanwhile, it is reported that China has instantly developed appetite for the crude oil and increased crude oil imports due to the slump in the oil prices. For instance, China imported 252.6 million tonnes of crude oil in the last nine months, an increase of 9.2 percent from a year earlier (General Administration of Customs 8th November 2014). In the month of October alone, China is reported to have imported 36 cargos of crude oil. China is taking the advantage of plummeting prices to pile up stock for future consumption. SUPPLY GLUT Organisation of Petroleum Exporting Countries (OPEC) which controls 40 per cent of world oil exports always regulate its production levels to control the oil prices on the international market. But the coming on stream by the United States of America and Libya has enhanced the production outputs astronomically. The shale production in US has increased from 8.5 million barrels per day in July 2014 to a staggering figure of 9 million bpd. Libya has also increased its oil production levels from almost 200,000 bpd to above 900,000 bpd following the political unrest. These production outputs have created supply glut in the world market, dumping the petroleum prices further. They were not factored into the world's projected production levels. The global oversupply is therefore, two (2) million barrels a day constituting 6.7% of OPEC output.

OPEC's ROLE IN OIL PRICE CONTROL Normally, OPEC should have stepped in to cut back production in order to stabilise the prices but infighting among the members makes it impossible. An influential member, Saudi Arabia, has already signalled its unwillingness to limit its oil production levels. However, OPEC members are due to meet on 27th November in Vienna to take major decisions on the global oil market. Some energy experts and watchers had therefore, adopted "wait and see attitude".

Unfortunately, OPEC's meeting recently ended without agreement on production cuts. The General Secretary of OPEC announced that they would not shore up the prices through the production cuts. After this announcement by the general secretary, the prices of Brent crude oil has dipped further below to $50 per barrel as at 7th January, 2015.

EFFECT OF FALLING PRICES OF OIL The effects of these trends are in two folds: on the oil producing and consuming countries.It might negatively affect the oil exporting countries but positively affect importing nations. For instance, Saudi Arabia and Russia produce close to 10 million barrel of crude oil per day each. It is worth mentioning that Russia gains 70% of all tax revenues from oil and gas. For this reason, if the price of oil falls by $20, each of these countries stands to lose about $200m per day. Already,the 40 percent slump in the price of the international benchmark Brent-grade crude oil over the past five months will reduce annual revenue to oil producers worldwide by a whopping $1.5 trillion.

This can affect their entire budgets which are completely or partially financed by the proceeds from the oil revenue. Many countries such as Venezuela, Iran and Nigeria that rely heavily on the oil revenue would definitely "suffocate" in their attempts to settle their foreign debts, finance their public projects and stabilise the local currencies. Other oil producing countries like Russia, Ecuador and Algeria could even go into economic recession if the trend continues. The frightening news for these countries is that the prices are predicted to fall further up to the last quarter of 2015.

On the other hand, Ghana like many other importing countries such as Burkina Faso, Japan China, and India would welcome the falling oil prices as good news. The value of oil imports of these countries will drop. Thus, it will help to reduce the current account deficit that has bedevilled the country for sometime now. However, it is important to underscore that Ghana's crude oil transactions are dual-dimensional and stand to gain domestically. The windfall arising from the falling petroleum prices could be used to fund the needed developmental projects in the country for the economic takeoff.

Alhaji Mustapha Iddrisu Energy Analyst