Practical analysis for investment professionals
05 February 2015

Poll: Is the Oil Price Plunge a Cyclical or Structural Change?

Global oil prices have plunged by approximately 50% over the past seven months, their sharpest price drop since the 2008 global financial crisis. The sudden fall can be attributed to a confluence of factors — most notably, weaker demand because of sluggish economies around the world, a surge in supply because of the shale energy boom in the United States, and a relatively stable geopolitical backdrop (insofar as there have been no meaningful supply disruptions).

The decision by OPEC, which produces 40% of the world’s oil, to maintain production in a bid to pressure higher-cost US shale producers and the strong US dollar have also served to dampen prices. Of course, each of these factors could be short-lived. We asked CFA Institute Financial NewsBrief readers if the oil price collapse was cyclical in nature or the result of a structural change within the industry.

Is the major drop in the price of oil a cyclical or structural change?

Poll: Does Syriza's victory in Greek elections alter the likelihood of Greece exiting the eurozone (Grexit)?

Of the 882 who responded to our poll, a plurality, 45%, believe the oil price collapse to be cyclical; 38% think it is structural; and 12% see it as neither.

On 10 February, Fereidun Fesharaki will be addressing the current state of the global energy markets and its implications in “A Changing Global Energy Landscape: Implications for MENA.” This webcast will be broadcast live at 3 a.m. EST and subsequently archived.

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All posts are the opinion of the author. As such, they should not be construed as investment advice, nor do the opinions expressed necessarily reflect the views of CFA Institute or the author’s employer.

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About the Author(s)
David Larrabee, CFA

David Larrabee, CFA, was director of member and corporate products at CFA Institute and served as the subject matter expert in portfolio management and equity investments. Previously, he spent two decades in the asset management industry as a portfolio manager and analyst. He holds a BA in economics from Colgate University and an MBA in finance from Fordham University. Topical Expertise: Equity Investments · Portfolio Management

2 thoughts on “Poll: Is the Oil Price Plunge a Cyclical or Structural Change?”

  1. Chuck t says:

    If it were structural two implausible assumptions would have to be made. One, a constant stable geopolitical environment in the future. That is highly unlikely given the history of oil. A good book to read on this topic is “The Prize”. Second, a constant sluggish economy going forward. A good question is, how long is this part of the cycle going to last?

  2. Dave Larrabee says:

    Chuck t,

    Your points are well taken. Thanks for checking in, and for the book recommendation as well.


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