Why oil prices will stay low for years to come

Papa KyKy By Papa KyKy, 7th Oct 2015 | Follow this author | RSS Feed | Short URL http://nut.bz/3p52d-bn/
Posted in Wikinut>News>World

One of my hobbies is researching and learning about the oil markets. Barring a major world catastrophe or new major war in the middle east, I believe that oil prices will remain low for years to come. Here are the reasons why I believe that this will be the case.

Demand for oil is not increasing/alternatives to oil are emerging

Global economic growth has been rather tepid the past few years, particularly among the large oil consumption countries. I do not foresee this changing for the next 2 years. Alternative sources of energy are emerging: Other sources of energy are also rapidly becoming more viable as an alternative to oil. Most notably is the emergence of Natural gas, particularly for home heating.

The US dollar is poised to rise further

The Federal Reserve has been flirting with raising interest rates, but growth has not been strong enough for them to raise rates. Although the unemployment rate has been declining in the United States, there is still a lot of slack in the market. 2016 will be a year of uncertainty, largely due to the Presidential Election. Once 2017 has arrived, it will be more clear where monetary policy will be heading. I predict that the US dollar will rise once the uncertainty of the new president has ended. Since oil is priced in US dollars, the price of oil reacts inversely to the rise in the US dollar.

Technology is reducing demand for oil

This is much less of a factor now, but will continue to be an increasing contributing factor in the next few years. Hybrid cars, Electric cars, and the rise of telecommuting will all have an impact on the cost of oil. Other technological trends, such as the increase in the use of electronic tolls, increases in gas efficiency, and the increase of GPS use (which prevents getting lost, and avoiding traffic snares), all will help to decrease gasoline consumption. Driverless cars will further reduce gas consumption by driving more efficiently (yes, machines will eventually drive far better than humans can).

There is still a glut of oil supply on the market:

The world supply of oil has outstripped demand for many years now. It will take several years (or a major oil production drop) for this imbalance to be corrected. Increased production from Iraq, and future increases from Iran should also keep the market well supplied, if not oversupplied for a long time.

OPEC is not as concerned about oversupply as they are about market share

Years ago, OPEC would not have hesitated to pull back on supply during a global supply glut. Now that North America has become a major player in the oil production markets, OPEC is hesitant to cut back on production quotas in order to maintain market share. This is just now starting to have an effect on North American production to any significance, but we will not see the effects of the reduction of North American production for about 2 years. However; this may change if the US ban on the export of oil is lifted, which I believe is likely to happen fairly soon.

World events do not have the shock value that they used to

Major world events that used to have an impact on raising oil prices do not have the same effect that they used to have. This is because these threats to supply have existed for so long, that they are already well factored into the price of oil.

In conclusion

I do believe that oil prices will gradually begin to rise again, but not for another 3 years or so. I expect that demand will increase at that point, to where there will not be as much of an imbalance as we see today.

Tags

Alternative Fuels, Economy, Energy, Fuel, Fuel Prices, Gas Prices, Gasoline Prices, Iran, Iraq, Oil, Oil Prices

Meet the author

author avatar Papa KyKy
I enjoy talking about videogames, technology, and different ways to save money.

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Comments

author avatar pohtiongho
7th Oct 2015 (#)

Papa Kyky: Good post. I agree with your ideas. Another factor is that if the oil producers were not as greedy as before, oil price would not have dropped that far. The expensive oil forced others to look for alternatives, and people are using less oil now.

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author avatar Fern Mc Costigan
7th Oct 2015 (#)

Interesting post and facts in it too!

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author avatar Retired
7th Oct 2015 (#)

I would like to see as much oil as possible stay in the ground and not add to the world's climate change problems. Whatever pricing arrangement achieves this goal will surely be best.

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author avatar Sivaramakrishnan A
7th Oct 2015 (#)

Earlier, the world was dependent on few oil producers under OPEC. Now not only is its hold weakening, alternates like solar are becoming cheaper by the day. When they make economic sense, meaning become the cheaper alternative, oil will no longer play a dominant role - siva

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author avatar brendamarie
7th Oct 2015 (#)

great article

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