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The Ups & Downs of Oil

Published on: 29/07/2016

Those of you following the oil were probably happy to see oil prices rise in the past months, making a recovery from the abysmally low prices that characterised 2015 and early 2016. However, as of today prices are going down again and are currently at their April levels at about $41 per barrel (US West Texas Intermediate (WTI)).

This is happening because oil prices are influenced by a rather large group of factors. For one thing, the American economy is strong, with the USD holding its ground against other currencies. It was largely due to the Americans’ refining of new methods for oil processing that the staring contest with OPEC began, leading to the dramatic drop in prices of last year. In addition, the oversupply caused by the overproduction of the countries with oil reserves remains as an unresolved issue. Even when concerns about smaller demand were raised last year, OPEC states didn’t stop pumping more oil, exacerbating the problem.

Reuters reports that Goldman Sachs expects a bullish trend to develop this year, but it projects that the prices will be between $45 and $50 well into 2017. They also predict some small-scale volatility if we receive news that the global economy is doing worse than expected or the US dollar gains further strength. Despite this, the bank remains optimistic that the oil prices will increase in the long term.

The famous bank also added that according to their own analysis of the oil market, it would require for a major event such as a sharp drop in demand for oil from China or a significant increase from African oil producers to shake the oil market and cause the prices to drop. In other words, it is not impossible for prices to move further down, but it is unlikely.

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