As of 2015, the oil industry has experienced many changes. But those changes have been mere downturns mostly if they were to be compared with the eventualities that took place during the golden days: the 1990s. But, after taking a closer look at the history of these behaviors, it is possible to assert that after every major setback, a recovery has come; however, in light of today’s circumstances, hoping for a recovery would be, perhaps, asking too much.
The current crude oil prices
When it comes to analyzing the price of oil, it is important to mention first that within the vast spectrum of fossil fuels and hydrocarbons there are several benchmarks. Brent crude oil, the main and major international benchmark, has been trading on average at $48 throughout the year. The American benchmark, however, at $45 per barrel.
What does the future look like?
Executives and well-versed individuals within the oil industry firmly believe that it will take years before crude oil prices return to the $90 – $100 per barrel before the collapse in 2014; however, after realizing a no less than important recovery —when the price rose from $30 to $50— in 2016, there was a state of confidence in the industry and experts even went on to assert that the price could rise to $60 per barrel.
Nonetheless, that confidence rapidly faded away soon after the crude oil prices plummeted earlier this year, but the vast majority of experts confidently say that a rise in both oil and gasoline prices is expected.
Be that as it may, the oil market could actually be a subject of another bumpy ride. Wall Street and analysts predict a price anywhere between $40 and almost $65 by the end of the current year: dramatic changes are possible, if not highly probable. Political and economic disturbances in one of the world’s major oil-producing countries like Venezuela will play a major role. In fact, experts seem to be on tenterhooks given the major upheaval that is taking place in the South American country: strikes, protests, deaths, and pretty much all the components for a state coup, which of course would be terrible for the price juncture, could cause a staggering price spike.
Is always a rise in the prices good?
From the producing companies standpoint, of course: their employees and shareholders end up being the sole winners due to the increase in prices. In the American juncture, producing states like Louisiana, North Dakota, Alaska, Oklahoma and Texas benefit from such landscape simply for the fact that an increase in crude oil prices implies an increase in employment rates and tax revenues.
Another consequence commonly associated with an increase in crude oil prices is the increase of oil-producing activities, which help local small businesses, construction firms and transportation companies; and, of course, producing countries like Russia, Saudi Arabia, Nigeria, and Venezuela.
On the other hand, an increase brings its downside as well. Consumers of gasoline, diesel and heating oil suffer the consequences, especially those with much lower incomes —who end up suffering a totally disproportionate effect— because they need a bigger share of their earnings to supply their needs. And, like everything in economics, every major event has the power to snowball from there: since people will have less money to spend on other things, businesses like restaurants, hotels and the retail industry as a whole also suffer the consequences.
Nevertheless, those are just possible scenarios and their consequences. Today’s oil and gasoline prices are, to some extent, in balance, which can be translated into positive economic news mostly. They are just high enough to help states and countries in need, but low enough to prevent consumers from suffering the aforementioned consequences. However, one thing remains unquestionable: even though oil prices remain half what they used to be prior to plummeting in 2014, a price imbalance —either up or down— could come uninvited and at any time.
Does the OPEC play a vital role in establishing oil prices?
The honest answer would be: it is still to be figured out. OPEC members, however, produce almost 40% of the total global hydrocarbons supply, so, it would not be unreasonable to consider them a sheer force should they unite. Within this group, Saudi Arabia stands out as the leader. The cartel agreed upon limiting production levels for six months, and Saudi Arabia alone agreed to reduce production by almost 490,000 barrels a day —only 5% of its total production—. OPEC countries, as a group, limited their production as a way to protect markets, especially in Asia, and to outsmart illegal competitors.
As for the future, it would also be advisable to consider whether Trump’s administration will also play a vital role in the final outcome. So far, he has defended the construction of several pipelines, which would demand more jobs and, if it were to become a reality, would allow the United States to transfer oil from Canada to the Gulf of Mexico.
Suzzanne Uhland, who previously addressed the topic of bankruptcies from different standpoints, will be addressing this topic more often and certainly, will provide better insights on possible results. For now, time shall tell.
* Featured Image courtesy of Life Of Pix at Pexels.com