The Current State of Oil Prices


Oil is in the news, and everyone is talking about the impact of lower oil prices on our economy in the USA as well as around the world. Within the past year, oil prices have been as high as $100 per barrel, but are now fluctuating to about $45 per barrel. That’s a significant drop in price, so it’s important to consider why that reduction has occurred and also learn where oil prices are going.



What Drives Oil Prices?


Oil is a commodity, but it’s also a commodity that is priced specifically in U.S. dollars. This means that the price of oil fluctuates mainly as a function of three things:

  • Supply
  • Demand
  • The strength of the U.S. dollar

It’s the first and the last of these three things that have been driving prices lower, although demand may be slowing as well. [1]


Oil Supply


offshore-rig

 

Historically, oil prices go down when supply goes up, and that’s exactly what is happening now. There are two main drivers of this increased supply:

  • Hydraulic fracturing (fracking) in the USA
  • OPEC production

In the USA, fracking has started to increase supply, making the U.S. the top global oil producer. [1] OPEC (particularly Saudi Arabia) has also vowed to keep production levels constant, rather than reduce them to inflate the price of oil.

Within the past six months, the U.S. dollar has also gained in strength against all major foreign currencies. For example, it used to take $1.26 to buy one Euro. Today, it takes about $1.07. That’s a 15 percent increase in buying power. If the dollar continues to strengthen, there will be continued downward pressure on the future of oil prices.

 

Where Do U.S. Oil Prices Go From Here?


There are differing opinions about the future of oil and the U.S. price per barrel. Historically, the data on oil prices show significant short-term fluctuations. [2] The history of crude oil prices is remarkable for its peaks and valleys, each experienced in a short period of time.

Some oil experts are pointing toward higher oil prices by the end of 2015 and suggesting $70 per barrel.  The U.S. Energy Information Administration projects an average price of $58 per barrel in 2015, increasing to $75 per barrel in 2016. Still, it’s possible for oil to continue falling even lower than its current levels.

 

The Impact of Oil Prices


When oil prices fall, we see it in lower prices at the gas pump. This effect can sometimes be reduced by separate gas taxes imposed by state governments (such as in California), but lower oil prices generally mean that we can drive our cars less expensively. However, it also means that companies that rely on revenue from oil production will have more pressure to cut labor costs and lay people off.


pump-sundown


Internationally, many countries derive the majority of their income from the sale of oil. These include the OPEC nations and Russia. Reduced revenues from lower oil prices may impact the actions that governments take as well as their internal politics.

 

Learn More with the Globaleee Team


At Global Elastomeric Products, we have been servicing the oil and agriculture industries since 1963. We provide made-in-the-USA standard and custom designs/products for well production and servicing. We’ll help you design and implement everything you need, and we can even create rubber products for any oil or agricultural application. As always, our quotes are absolutely free.

It’s our job to stay on top of the trends and forecasts for everything that affects these industries. We’re a low-cost supplier and we pass our savings on to you, so you can take advantage of the best prices. Submit a contact form or call us today at 661-831-5380 to learn more about our products and services.

 


References

  1. http://www.forbes.com/sites/joelmoser/2015/02/11/decoupling-from-oil-prices/
  2. http://www.forbes.com/sites/mikepatton/2015/02/18/where-do-oil-prices-go-from-here/