BECAUSE WHEN THE PRICE OF CRUDE OIL FELL IN 2014, THE LAND ROSE

SIGNIFICANTLY
Juliana Bonilla Trujillo
Universidad Piloto de Colombia
2018

The worries of the world oil industry were great because of the effects that the drop in international
oil prices left in the balance sheets of the companies, in the Colombian market they were greater,
because abroad the oil that Colombia sells, mostly heavy , was 'punished' in international markets.

In 2014, when international oil prices began to fall (October of that year); the punishment for
Colombian crude was higher, since the difference reached 10.4 dollars per barrel. According to
industry sources, the references Brent and WTI (United States) apply for the best quality oils that
are traded in liquid financial markets. The most relevant factor in the Colombian economy will be the
price of crude oil abroad, because although the country is not a major oil exporter, oil remains the
product of greater external sales and having a higher cost in the international market, there will be
greater amount of resources for exports and improves the fiscal situation.
Supply and demand, as well as political and speculative factors, influence fluctuations in the price of
oil. In recent weeks its value has been losing ground due to a surplus of crude oil in the market from
the producing countries and a reduction in oil demand along with a cooling of the global economic
expansion. This unbalances the world market and forces its suppliers to find other destinations in a
high-supply environment.1

Low oil, the dollar rises (oil rises, the dollar low) was the hard lesson Colombia learned during the
oil price crisis that began in the second half of 2014. It is just a rule that shows the inverse
relationship between the rates of oil Colombian change the international price of crude oil, which
shows the dependence of the Colombian economy on the hydrocarbons sector. However, in the last
two weeks this rule has been breaking both oil (+ 4.5%, exceeding US $ 74), and the Colombian
exchange rate (+ 3.48%, exceeding $ 2,820). Registered increases. Therefore, it is difficult to
project the price of the currency in the coming months; in addition, its behavior would depend
largely on international situations. The demand in the industrialized countries is practically
stabilized, so that the growth of demand must come from China and the developing world. For the
which refers to the Asian giant, the change experienced by its economy, from a growth driven by
investments to another fueled by consumption, makes presage that the high annual rates of
increase in the use of oil are already history, with the particularity that even those segments of the
economy that
are vital for a significant increase in oil demand show signs of slowdown.

Thus, the International Energy Agency has stressed that sales of passenger vehicles rose in
November by 4.7% in relation to the same month of the previous year, which constitutes the lowest
percentage increase in eighteen months According to the Agency, the total demand for oil in China
is still growing at
an annual rate (relatively modest) of 3%, although the bad data on the sale of
cars, the increase in taxes on fuels and a panorama less buoyant macroeconomic, will probably
translate into a smaller increase in 2015, of the order of 2.5%. In part, this trend is coming distorted
to the markets due to the oil storage strategy adopted by China in the present. Low prices represent
an opportunity to increase stocks strategic and according to the International Energy Agency, in
November, this activity it meant an extra demand of 290,000 barrels per day, a volume that could
increase in the future.
The fall in GDP in oil-exporting countries, such as those in the East Middle or Russia, can also
affect the decline of oil consumption. In the East Half, before the collapse of the price of crude, fuels
1
http://www.cei.gov.ar/userfiles/Panorama%20Global.pdf
were cheap for subsidies, so that the fall in price will hardly translate into an increase in
consumption, while, on the other hand, it will lead to a sharp drop in income government agencies
that in many cases are the largest investors and generators of job. 2

Since 2014, a depreciation of all raw materials was observed, which mainly included oil. Among the
factors that produced this phenomenon is the slowdown of the Chinese economy, the fall in
Europe's demand for this resource, the increase in the production of unconventional oil and shale in
the United States and the reaction of Saudi Arabia to contain this phenomenon, the currency war,
and the depreciation of these against the dollar.

Brent oil fell to 84.60 dollars per barrel as the dollar's strength, as well as a well-supplied oil market,
boosted the benchmark towards its biggest monthly decline since 2012. Brent lost 10% so far this
year. October 2014, its biggest monthly decrease since May 2012. WTI oil in the United States has
fallen to 79.56 dollars per barrel, after losing 11% last October 2014, also its worst performance
since May 2012. Outside the United States, other major economies also show signs of slowing
growth, suggesting weak oil demand. 3
For Colombia the fall of the oil gasoline behaved In December 2014, gasoline reached 0.91 cents
per liter and 1 January was declared a new increase of 1.9%. "It is unlikely that the Mexican
government will lower gasoline prices to the levels that the international price would suggest,
Mexicans still pay too much for gasoline, and that will become a sensitive issue for Mexicans, which
will probably lead to some sales. In prices in the coming months, particularly since it was promised
that the recently approved energy reform would lead to lower costs, "Wood warns BBC World.

Oil rise

The increase in the value of oil will depend on different factors, the three most important are the
increase in demand, speculation and the geopolitical conditions of the oil-producing countries.

Increased demand

Increasing the demand for oil increases the value of the product, because there is a greater need
for it. This only occurs if the demand exceeds the supply, understanding that the less oil is ready for
sale, the higher the price that the person who needs it will pay.

Financial speculation
Speculation is nothing other than the increase in the value of a product, betting that in the future this
reaches a higher value than the one stipulated, in order to obtain benefits.

Low oil

The drop in the price of crude oil can be due to an increase in production or a fall in demand.

Increase in production

When it is ordered to produce more oil than the one that is in the capacity to sell, the product
exceeds the market of the demand, this brings therefore the fall of its value.

Drop in demand

2
https://www.eltiempo.com/archivo/documento/CMS-15554436
3

http://revistakavilando.weebly.com/uploads/1/3/6/3/13632409/revkav_vol6n1_7la_caida_de_los_precios_
petroleo_dl_jfg_cag.pdf
The fact that some oil buyers no longer either need the acquisition of hydrocarbons, because they
start to exploit their own oil or because they divert their economic activities to other areas, would
directly affect the demand for this product.

Thanks to the hydraulic fracking method, the United States became the main world producer of
crude oil in 2014 with a production of 12.7 mb / d and maintained its position in 2015 when it
reached a quota of 13.7 mb / d, after displace Saudi Arabia and Russia (Graph 4).Since 1975 the
country had banned crude exports to meet the domestic demand and to deal with the volatility of
prices and interruptions of supply by the Persian Gulf countries. In December 2015 this the ban was
lifted in view of the increase in production and the oversupply in the Internal market.

The negative correlation between both prices (one goes up while the other goes down) does not
imply that the low price of oil is the cause of the dollar's rise, but it does indicate that its fluctuations
are related. I suggest seeing both prices as consequences of other more complex factors. To see
the topic further, let us look at four possible reasons that may explain part of the relationship. 4

The first is the interaction between the world economy and the US economy. A strong dollar is the
reflection of the rebound of the American economy, which has already doubled its oil production in a
little more than a five-year period.

4
https://www.sectorial.co/articulos-especiales/item/51248-icomo-es-la-relacion-del-dolar-y-el-petroleo-en-
colombia-expectativas-para-el-2015