Falling Oil Prices
Watch the bouncing ball; that may describe oil prices in recent years. With incremental changes, Americans are at the point where we might not even pay attention anymore. It’s only those trends that move the ball substantially, either up or down, that seem to catch our attention.
With that in mind, oil prices have mostly trended downward in recent months, reaching a 7-month low in mid-June. The reasons are many with catalysts in various parts of the world. In May, it was partially due to increased production in Libya and an oversupply in the U.S. That last reason may be a curiosity to many compared with the status quo only five or ten years ago. But, more recently, the U.S. stockpiles have remained resilient.
OPEC had cut production to bolster prices, but the move had not made a big dent in the global supply, which has kept prices in check. In early May, gas futures had hit a two-month low. Demand was slightly reduced as well. U.S. production has been stepped up and has offset the OPEC cuts. Also, with Libya producing 827,000 barrels per day. This has put the country’s production at a three-year high.
What will the Near Future Hold?
The trend line for crude oil prices has hit three lows this year. Brent crude, the global benchmark for futures had slipped by as much as four percent by the end of May, with a price below $50. That was the third month in a row for losses.
Many corporations are also embracing alternative energy sources. This has helped to reduce demand somewhat.
Despite the recent trend, with oil down 8 percent through the end of May. Some analysts still believe that we could see $60 barrel oil by the end of the year, while others see it topping out at $55. The consensus seems to be that there will not be any major trends in price movement unless some unexpected geopolitical event occurs.
U.S output might be the big story, with production climbing to more than 9.3 million barrels a day as of late May. That production level puts the U.S. close to top producers Saudi Arabia and Russia. This is in light of OPEC’s production cuts and the support of some non-OPEC oil producers who are cooperating with the organization. Industry experts expect that U.S. production will grow by 1.5 million barrels next year.
In the meantime, consumers are getting a respite as complete control of oil prices is taken out of the hands of the producers in the Middle East who have been the traditional arbiters of price. This trend should benefit Americans into the future as long as U.S. production can play a role. For now, those surplus margins are shrinking, so we can expect to see the potential for some upward movement in the short term.