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UP, THEN DOWN, THEN UP AGAIN… BUT WHY?

A LOT OF FACTORS IN PLAY IN OIL’S ROLLER COASTER RIDE

By CASEY GISCLAIR

Last month, we explained why the price of oil on the global market had dipped and what political factors were driving the industry going into the future.

This month, we’ve seen a bit of a 180-degree turn and we’re here to again explain why as best we can.

After oil prices bottomed out last month at just below $65/barrel, the prices surged back up again beyond $70/barrel and even at $74/barrel when trading started in early July.

The increases are good for local business, as documented in recent months, as high prices mean high profit margin for exploration in the Gulf of Mexico.

But the market right now is described as “volatile” with several moving parts in play, which could cause prices to rise, fall or stabilize around their current rates in the near future.

A REASON FOR THE INCREASE: 

Instability in 2 countries

Two countries which heavily produce oil and gas are not supplying the global market with as much crude as normal, which is lowering global supply and, is thus raising prices.

Venezuela is a huge player on the global oil market, but political and economical instability in that country has slowed their oil production significantly, limiting supply around the world.

Two years ago, Venezuela was producing 2.2 million barrels of oil per day. 

But data produced throughout the spring shows that the country’s production has dropped below 1.5 million barrels per day – the lowest rates of production in the nation in more than 20 years.

Forecasts for Venezuela are not promising. The country is in severe political crisis and the current regime, led by President Nicolas Maduro is supported by the military (for now), which is keeping him in power, despite rumors of an overthrow.

As long as Maduro is in power, oil output is expected to fall even further, which will likely keep global supply from flooding the market and significantly dropping prices.

Similar stories have played out in Iran and Libya, where the country’s vast oil fields have produced numbers far lower than their potential, which has kept supply lower than normal and has pushed prices up.

IT COULD BE EVEN HIGHER

In history, when oil producing countries around the world are having problems, the price skyrockets to $100/barrel or above. 

That’s not happening right now, in part because of work that’s being done in the United States.

Shale work in our country has served as an added boost to global supply, which has stopped the price from spiking out of control.

Shale exploration has become more profitable in recent years and fields that once needed prices at $65-$70/barrel to be profitable are now becoming attractive at rates closer to $50-55/barrel.

But experts warn that shale is not the limitless well like the deepwater exploration that’s done in the Gulf of Mexico.

What is a sweet hit for now could be temporary if sites dry up or produce less than they are now.

OPEC’S ROLE IN IT ALL

OPEC wants to stabilize the market. When prices tanked, member nations agreed to limit their production as a way to stabilize the market.

After months of following that agreement, prices went up to the levels we see now, which has OPEC shifting again.

Member nations agreed to a new deal in late-June, which will increase production amounts – a direct effort to stop the price of oil from going higher. It was $65/barrel at the time.

The increase will call for 1 million more barrels to be produced per day, which should offset some of what is being lost in Venezuela, Iran and Libya. 

AND ALSO, PRESIDENT TRUMP

President Trump wants prices to trend downward as well. 

On his social media platforms, he called for OPEC to reach a deal to increase supply, saying that prices were too high. 

But OPEC nations believe that Trump is to blame for the lack of supply – most notably because of his decision to leave Iran’s nuclear agreement, which has caused the country’s economy to suffer.

LONG-TERM OUTLOOK

Even with the temporary dips and spikes, oil and gas experts say that the long-term forecast is not changing.

Oil and gas will dominate a huge piece of the global economy for years and experts believe that the price will continue to slowly trudge upward to levels plateauing near $75-80/barrel in the coming months and years.

“Oil and gas is not going anywhere,” said Don Briggs, the former President of LOGA. “Not by a long shot.” •

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