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Where is the price of oil going?

by , 25 November 2014

The oil price has plunged from around $115 a barrel in June to around $80 a barrel today.

OPEC, which represents many of the biggest oil producing nations hasn't responded to the lower price by cutting production.

So where does this leave the oil price? And where is it heading?

Let's take a closer look…

The future of the oil price

No-one knows with any certainly where the oil price is going. And over a longer timescale, the oil price has to be at a level which makes it viable for oil producers to get it out of the ground.

Over the last ten years or so, a rising oil price resulted in investment into many new technologies and substitutes.

Take fracking. A low oil price could limit some efforts into this form of oil production. But it would also make companies look for more efficient and cheaper ways of getting the oil from the ground.

Oil went through a phase of underinvestment and high demand, says John Stepek in Money Morning UK, to a phase of high investment and weaker demand.

There’s more than enough oil to go round at the moment.

What the futures market tells us about the oil price

One clue of where the oil price could be going is to look at the futures market.

For January 2015 delivery, the price for a barrel of Brent Crude is $79.68, less than the current oil price. Fast forward to January 2016 and the price is $84.15.

This is significantly less than the price we saw in June of this year.

With the global economy still in recovery mode and with abundant oil supply, at the moment it doesn’t look like the price of oil is going to scale back to those levels any time soon.

But as with the vast majority commodities, prices can be volatile.

So there you have it, where the price of oil could be going.

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Where is the price of oil going?
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