What is Driving Oil Prices, And Will They Continue Declining?
by Abdul Aziz Mondal Finance 18 October 2022
It’s all about supply and demand when it comes to oil prices.
The two leading factors are the cost of production and market inclination. Due to global factors like Russia invading Ukraine and the weakening Chinese economy, the price of oil (amongst other things) is dropping. The experts say not to celebrate just yet, though.
The price for energy resources is renowned for being unpredictable. It can skyrocket or plummet in an instant. Let’s look at what’s currently driving these prices and whether they will continue to decline over time.
What’s Happening Now?
Despite finding other green resources, oil still plays a massive part in the worldwide economy. After Russia attacked Ukraine, professionals in the energy field expected the cost of oil could be two hundred dollars per barrel.
This would cause shipping and transportation prices to rise to a ridiculous degree. China is the leading oil importer from around the world. As of right now, oil prices have dropped significantly, due to the dropping of China’s economy, to around ninety dollars per barrel.
There are also fears that a recession is on the horizon, which could kill the energy demand, not to mention hurricane season. These natural disasters seem to draw oil refineries, and many closures occur.
The Organization of the Petroleum Exporting Countries (OPEC) comprises 13 countries. They were created to accommodate policies when it comes to petroleum and gives financial and technical help to their members. Recently, they have been talking about the possibility of reducing oil production and haven’t landed on a definitive answer yet.
Supply, Demand, and Sentiment
The cost of oil happens in the worldwide market. It moves from one place to another by pipeline, barge, or ship. Supply and demand ultimately decide what the cost of crude oil is global. The price can alter due to transportation costs and the various types and qualities of the oil.
The idea of supply and demand is simple. As the requirement or demand for something builds up (or the supply goes down), the cost of the item should rise. The price should decrease if the demand goes down (or the supply goes up).
The other essential reason why the cost of oil is decided is sentiment. The idea of sentiment is the sheer belief that oil prices can go up in the future and can increase the cost of oil prices. The same can be said for a decrease in oil demand.
If you believe the prices will drop in the future, it can impact the price going down. It’s fascinating to think that the cost of oil revolves around market psychology. I guess you could call it a self-fulfilling prophecy.
Some analysts predict that the oil price will be around the same going into 2023. Of course, if a recession occurs, oil prices will decrease. This could give consumers some relief in that area. Even though gas and oil prices have fallen, living costs have increased. Things like electricity, housing, and groceries continue to grow, significantly affecting a person’s budget.
Predictions and Reasoning
Oil costs usually increase in the spring in preparation for summer driving. Once the colder seasons happen, the cost of oil drops. However, when the prices increase, drivers tend to seek alternative ways to save money, like carpooling or driving less to combat the expense. Overall, these are uncertain times right now with political and economic upheaval. Many factors are making the price of oil erratic.
Russia is the third biggest manufacturer of fuels (liquid form). When they attacked Ukraine, it instantly affected the future cost of Brent crude oil. At first, oil prices soared upward, but oil was dropping in price per barrel because of other factors. The United States supply and demand have been affected due to Covid and natural disasters like Hurricane Ida. Production plummeted because the storm shut down more than nine oil refineries.
There’s also Saudi Arabia to consider. To simplify, they are not producing as much oil as they expected. It’s the lowest it’s ever been. Even President Biden’s trip to Saudi Arabia proved unsuccessful as he pleaded with Crown Prince Mohammed bin Salman to push more oil out urgently. Is the second-largest manufacturer of oil production going to peak? This is a scary thought considering the world relies heavily on oil production.
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Is the Future Green?
To answer the question as to whether the prices will continue declining, we will have to see how things trend, and that will take more than just a month or so to determine. There are analysts on both sides saying completely different things. The downturn in price could be a temporary thing or could remain for a while as it relies on a lot of factors worldwide.
Climate change is also forcing our hands when it comes to oil production. The cost of oil down the line will hinge on changes in transportation, energy, and other fields. This will coincide with our society working to be independent of fossil fuels and switching to wind and nuclear power.
What can we do to prevent oil supplies from running out? The key is to act now before it’s too late. Until that happens, though, oil remains a vital staple worldwide.
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