Here at Suzzanne Uhland’s blog, we have been talking quite a lot about the predictions and projections for oil prices next year in 2018. With only a couple of weeks before the new year, it is common for many to speculate and speak their mind when it comes to their own interpretation of influential factor that affects the prices of oil, and even seemingly unrelated events they believe will affect in some way or another, the value of crude all around the world. This year was an interesting one, to say the least when it comes to the world of oil trading. Prices rose and maintain a modest upward trend despite the odds and the survival of a supply-cut agreement signed by the OPEC that most people believed was going to tank. Prices managed to end the year just above $64 a barrel against all odds, especially since they were just below the mid $40 in the middle of the year.
What is going to happen next year? Well, there are a few key players with vested interests and with their own set of tricks to become influential in what is bound to happen. Shale oil, for example, continues to be the greatest threat in the market and continue to be the main point of focus by the strategies of the OPEC. The whole purpose of the supply-cut agreement was to attempt to stop the advancement of shale oil production and to slow down its profitability, which is growing at the expense of the OPEC’s dominance of the oil industry. The situation is so dire that there are even some rogue oil producers that could violate the agreement in order to make some money selling and exploiting higher prices but at the cost of undermining the entire effort in the long run.
The reality is that American shale production will grow next year. Even with the efforts of the OPEC, production continues and the shale industry has already shown its ability to reel production in quickly in case of an emergency, while at the same time continue to attract investors in drilling with prosperous outcomes.
Some believe that while US production is growing, they will not be able to keep up the pace next year and their numbers may not be able to break a maximum of around 800,000 barrels a day, something that will not be sustainable in the long run when it comes to keeping up with the competition. However, these predictions are quite hopeful that the world’s economy is able to sustain a demand that will stimulate the industry, since that is the only way that shale growth will continue, especially if we consider the socio-political aspects that affect oil prices and consider the fact that they will most likely benefit the OPEC in any case.
At this moment, everyone is expecting a huge oil price spike, and something like that would be catastrophic, to say the least. A couple of years ago we saw what happened to Greece, and it was all at a time when the barrel of oil was priced at over $100. The problem arises from the fact that oil is a commodity that must be purchased no matter what happens, and at those prices, it became impossible to afford the level of spending the country needed, so the outcome was obvious and impossible to avoid and their debt bubble busted with awful consequences. The real issue is the fact that any oil-importing nation in the world is under the same risk as Greece right now, and it could even happen to the US.
One-third of all exported oil in the world has to go across the Strait of Hormuz, and with the current situation escalating in the Middle East; things are starting to look bleak. It doesn’t matter how small but is hostilities openly begin, then we are to expect for shipments to be delayed almost immediately and this will reflect on prices in a matter of weeks. Unrest in Venezuela is also another reason to worry, especially since recently there have been so many complaints as to the quality of the material being exported to the points that shipments have been sent back and the ability the country has to produce a proper product is called to questioning.
In these moments, everyone is reeling back and trying to be modest in their predictions after realizing that they may have been in over their heads initially. Yes, we assume there will be high levels of growth when it comes to US shale production, but at the same time we have to consider the possibility of a halt in demand, which means that the product produced will be done so at a loss, and when it comes to companies operating at that scale, that is simply something that cannot be afforded. It seems that OPEC’s patience at resolve may pay off at the end.
* Featured Image courtesy of Negative Space at Pexels.com