What is the reasoning behind the sharp fall of oil prices starting in mid 2014?
My understanding of the recent drop in oil price is due to recent changes in US drilling. They are now the worlds largest oil producer. This article by the economist does a good job explaining.

My answer (borrowed very heavily from the economist.)


Demand is low because of weak economic activity, increased efficiency, and a growing switch away from oil to other fuels.
America has become the world’s largest oil producer, creating a lot of spare supply. 
The Saudis and their Gulf allies have decided not to sacrifice their own market share to restore the price. They could curb production sharply, but the main benefits would go to countries they detest such as Iran and Russia. Saudi Arabia can tolerate lower oil prices quite easily. It has \$900 billion in reserves. Its own oil costs very little (around $5-6 per barrel) to get out of the ground.


For further reading, the NY times has a decent article explaining it a little more.

edit:
I think it is safe to assume that OPEC has market power. They can get oil far cheaper than their competitors (as referenced above).

With that in mind,
The below reference provides a model which explains what we are experiencing here. Cournot competition seems a perfect model to use.


Naoum-Sawaya, J. and Elhedhli, S. (2010). Controlled predatory pricing in a multiperiod Stackelberg game: an MPEC approach. J Glob Optim, 50(2), pp.345-362.


A key quote from the above article: "After reducing or eliminating competition, the predatory firm
can raise its price and compensate the loss by earning monopoly profits in the long run".

This second provides a very brief overview of OPEC and their behaviour.


OPEC reflects on its history. Salisbury, Peter, Middle East Economic Digest.


I couldn't find an empirical study comparing a Stackleberg model to the OPEC cartel but I do not doubt that this has been done to death.