Nobody likes to make predictions about the price of oil because it is such a volatile market. Oil prices are affected by the climate, politics, and other industries. As a matter of fact, the price of a barrel of oil can easily double in only a few months depending on what’s happening in the world. But, people still can’t help but wonder how long the low oil prices will stick around. There has been very little movement in the price of a barrel of oil in six months.
Why Oil Prices Plummeted
Gasoline prices peaked in 2008 right before the U.S. economy crashed. The national average was $4.17 per gallon and some areas of the country saw prices over $6.00. Talk about high oil and gas costs were all over the news, especially in the supply chain world. The U.S. was not the only place around the world with a high demand for gasoline; China was also using a lot of oil. Then, in early 2009, the U.S. oil industry started to take off because of fracking technology. Ohio, North Dakota, and other states started producing more oil than places like Saudi Arabia. This created a price war that has since driven down the cost of oil significantly. We went from over $100 per barrel to under $50 very quickly.
Supply vs. Demand for Oil
On the other side of things, demand for oil has never caught up with production. Low oil prices are expected to stay until they do. Economist first thought that China and other developing countries would pick up the extra demand for oil, but their manufacturing industries have been suffering lately. Additionally, many countries are looking to use more renewable sources of energy and decrease their dependence on oil.
Expert Predictions on Oil Prices
The Energy Information Administration (EIA) believes that gasoline prices in the U.S. will remain stable with the typical seasonal fluctuations. A representative from the EIA said, “EIA expects U.S. regular gasoline retail prices, which averaged $3.36 per gal in 2014, to average $2.43 in 2015 and $2.63 in 2016. The average household is expected to spend $675 less for gasoline in 2015 compared with last year because of lower prices.”
Even though it will be sometime before oil prices go back up drastically, you can still expect that they will go up at some point. The overall general trend in oil is an upward curve. It’s just hard to predict what conditions will happen in the world to affect the supply and demand of this widely used commodity. For instance, oil prices went up temporarily when there were problems at the West Coast ports. Wars are also major predictors of oil prices.
Economists are optimistic that low oil prices will be around for a while. Prices will eventually go up, but consumers will enjoy the low prices through the summer and beyond, which will keep shipping costs stable for businesses.