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Oil's been doing quite well, but it's unlikely to continue…

by , 16 October 2015

Over the past few weeks, the oil price has rallied.

This is mostly thanks to a weaker dollar and the chance that supply of US shale oil is slowing.

So will oil keep climbing?

Let's take a closer look…

How the oil industry has changed

The big change in the whole oil industry has been the success of US shale oil. More efficient fracking led to oil reserves that were once inaccessible to be taken out the ground.

This all happened when oil was trading in excess of $100 a barrel.

But then things started to change. Oil become plentiful, the Chinese economy started to slow and the US dollar gained.

Then the price of oil slumped last year. Just look at the chart below of what happened to the price…

Chart of Brent crude oil

Until this happened, the very idea of oil trading at today’s prices seemed absurd. High oil prices looked set to continue.

OPEC continued to pump out oil as before as reducing output would just affect their market share and not the price.

What’s happening now with oil?

The lower price is having an impact on oil producing nations.

Saudi Arabia is having to borrow money to cover the gap between government spending and the money it makes from oil, John Stepek in Money Morning UK explains.

Shale oil producers in the US are also finding it more difficult with a lower price. But the shale oil industry is more dynamic than traditional ways of producing oil. And it’s becoming more efficient and cheaper.

What’s going to happen to the oil price?

Shale oil is really a spanner in the works of the older oil producing nations. And whilst the bottom may be in for the price of oil, the chances of it returning to over $100 a barrel any time soon seems unlikely.

The one thing that could send prices soaring is if oil reserves start to run out. Then things could change.

So there you have it. Why it is unlikely oil is going to continue to rise in price.

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Oil's been doing quite well, but it's unlikely to continue…
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