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Falling Oil Prices and Future Outlook

 

Current Scenario

Oil prices are showing a downward trend since mid 2014.The prices fell from $110 /barrel to $44.82 /per barrel. The chart 1 and  chart 2 shows the recent price trends in the international oil market.Oil prices are determined by its demand and supply in the international market. Demand of oil comes from countries like USA, Russia, Japan and China and it is closely related to the economic activities of these countries. The demand had been low because the economic activities of China, Japan and Russia are showing a downward trend. The US oil imports were at lowest in last 30 years. The demand of oil is also affected as countries like USA are switching away from crude oil to other fuels to fulfill their needs.

crude oil 1Chart 1

The oil supply has showed an increase in the second quarter of the year 2015.The oil supply was 95.03 mb/d and in 2nd quarter it has increased to 96.31 mb/d. This supply increase has also put pressure on the oil prices. The oil supply will increase more as Iran has just made a return after the historic nuclear deal with the world powers. According to this deal Iran can restore about 500000 barrels a day by the year mid 2016. Saudi Arabia also wants to increase the oil supply.

Crude oil 2Chart 2

The main objective of KSA is to decrease the oil prices, so that it can squeeze the U.S. oil production. In short, Saudi Arabia wants U.S. to become dependent on the Arabian oil again. OPEC has not taken any step to instruct Saudi Arabia to reduce the oil production. As a result, the supply of oil is continuously increasing and it is causing the prices to fall.

What’s The Future of the Oil Prices?

OPEC is going to expand its oil supplies. Iran and Iraq have further invested in the brash heavy grade technology for producing crude oil. It is clear that the market’s ability for absorbing the extra supply of oil is weak. Along with America, Russia, Latin America and Canada are also planning to reduce the production of oil by the end of the year. The declining output will make changes in the mismatch of the supply and demand of oil. A gradual decline in the production will provide support to the oil prices and this will gradually raise the demand of oil in the market through booming economies like India and South Korea. Iran’s Deputy Oil Minster has also planned on unveiling new oil contracts for coping with the problem of oil production. By 2016, the prices of oil are expected to get stable a little but the overall trend will remain bearish. The chart 3 given below shows the oil price predictions made by the Energy information administration.

Chart 3

Prices
2013 2014 2015 2016
a West Texas Intermediate.
b Average regular pump price.
c On-highway retail.
d U.S. Residential average.
e Electric power generation fuel cost.
WTI Crude Oila
(dollars per barrel)
97.98 93.17 49.23 53.57
Brent Crude Oil
(dollars per barrel)
108.56 98.89 54.07 58.57
Gasolineb
(dollars per gallon)
3.51 3.36 2.41 2.38
Dieselc
(dollars per gallon)
3.92 3.83 2.73 2.77
Heating Oild
(dollars per gallon)
3.78 3.72 2.73 2.65
Natural Gasd
(dollars per thousand cubic feet)
10.30 10.94 10.33 10.25
Electricityd
(cents per kilowatthour)
12.22 12.50 12.67 12.94
Coale
(dollars per million Btu)
2.34

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About Emaad Qureshi