Crude oil is up there on the top of the most important and influential commodities as it affects the economic environment in pretty much all levels, from the daily budget of the typical American family all the way up to the dealings of the biggest corporations in the planet. The importance of such impact is only matched by its volatility, as prices in the industry of oil are affected by many factors, such as geopolitical and social instability, supply and demand, and last but not least, access to future supply. Factors such as these, change on the daily basis in response to shifts in policies, new reports, and general fluctuations in the international markets.
This year has been rather interesting when it comes to dealing with oil prices and the surprises that have come along with their fluctuating nature, so today at Suzzanne Uhland’s Blog we want to talk about possible predictions for the next year and how influential factors may play on the shifting prices of crude during the year of 2018.
The uncertainty of an oil shortage has always been a strong driver of price fluctuations as opposed as a feeling of comfort when the supply is high enough for prices to drop. One of the reasons why fear seems to drive oil prices probably has to do with the boogieman of oil production, the possibility of reaching “peak oil”. As we have talked about in other articles before, “peak oil” refers to the point in which the maximum point of oil extraction in history is reached and from that point on, it is obvious that the beginning of a decline in availability and production will ensue, something that will drive prices up as the commodity will reach a point of scarcity. A decade ago, something along those lines happened and OPEC manipulated production even as global demand grew, with the excuse that the world was well supplied and they were slow to speed up production again. These ensured prices remained at over $100 a barrel for quite a while helped by the fear this situation generated.
Another consequence of such uncertainty was the feasibility some methods of extraction gained quickly as prices rose to those heights. Enter shale oil, a production, and extraction process that was previously deemed economically unsustainable was now not just sensible, but actually profitable to implement. These benefited the United States greatly since their 40-year production decline was reversed rather quickly, helping the country ease some of the burdens from having to import so much of their oil and beginning to actually grow at a rate that is considered the fastest in history.
After this happened and with the growing popularity of greener fuels and a push for research on alternative energy sources, the OPEC added, even more, barrels into an already oversupplied market, hoping to defend their share and thus creating a period of complacency. During these periods, the prices go down significantly and continue to go down until inventory is able to once again support a rise in the prices of oil. Just last year, OPEC actually began trying to reverse back the saturation they created in the market, and even with the large reduction in production they announced and the increase of US shale flooding the market, prices remained steady, something that is still surprising to everyone. What ended up happening was that supply fell behind and the demand forced prices to rise to over $60/bbl.
Experts believe that in 2018 we will see a raise in prices due to a market that is continuing to tighten under the pressure of many external factors that are shaking the current status of the oil trade. The geopolitical situation in regions that produce oil is creating a perfect storm for turmoil since Venezuela’s situation gets worse everyday and the Middle East seems to be caught up with OPEC’s pressure on the market and their long-game strategy. It seems that $70 a barrel is going to be the standard for 2018 and now there is even a new factor that people were not counting on and that is the advent of bitcoin. The cryptocurrency is creating a huge energy crisis due to the amount of resources it takes to mine and how many countries are dealing with clandestine operations to produce the valuable cyber currency. This type of dealings are actually delaying the transition to cleaner and alternative fuel sources by creating a higher demand for fuel than expected. This unforeseen event is becoming another factor that may be pushing the price of oil up and perhaps even skyrocketing the demand for crude in ways that not even the most imaginative experts could have expected. The truth of the matter is that 2018 is going to be an interesting year and we have to just wait and see how forecasters are going to predict the movements of the market and the prices of one of the most important commodities in the world today.
* Featured Image courtesy of Pixabay at Pexels.com