Oil Prices Up

This has been the most interesting year for oil for as long as I can remember. Talking with my parents, they say it’s hard to believe the incredible supple of oil available at this moment. When they were growing up, there was a quota on how much gas someone could get in a week. Now, the supple is so high prices are down to levels not seen in decades. Oil prices are now at a one month high after prices shot up 7% on Tuesday. Oil futures continue to rise, with Tuesday marking the fourth straight day of prices increases. This marks the longest winning streak for oil in six months. According to the article, “Tuesday’s rally came in response to a U.S. refinery strike, which pushed up prices for petroleum products on concerns that the refineries could shut down fuel production.” http://www.wsj.com/articles/oil-extends-rally-but-markets-cautious-over-rebound-1422944186. If fuel productions fell, this would lessen the supply of oil, leading to a surge in prices. While oil prices have been showing signs of recovering, I do not think we have seen the end to low prices. If one oil refinery decides to cut production, they could be undercut by one of their competitors. There needs to be some sort of assurance that all oil producers agree to cut production. I believe this may happen, but it will not lead to prices going back up to $100 dollars a barrel. I believe prices will increase, but gradually find a steady state well below this summers levels. While US oil producers want to cut production, there is still an over supply on the global level. This will not get solved easily it is nearly impossible to get all oil producing companies around the world to cut production and spending in 2015. Many oil producing companies are losing money and will cut spending in 2015. This will lead to layoffs and lessened production. It will be interesting to see how companies that have oil and a main factor of production react. Oil futures continue to rise, indicating companies are playing it safe. by buying at prices they believe will continue to rise. According to marketwatch, “Crude-oil futures rallied well above $50 a barrel to settle at their highest levels of 2015 Tuesday, as prices jumped on speculation that a sharp decline in U.S. drilling activity will result in supply declines.” http://www.marketwatch.com/story/oil-prices-continue-to-rise-as-investors-worry-about-supply-cuts-2015-02-03. This article also notes that they do not believe this decline in drilling will be enough to offset the global oversupply. On a worldwide scale, there is a surplus of 1.5 million barrels per day. This is remarkable and explains why prices are so low. It will be interesting to see if companies on a global scale follow the US’s lead and cut down on drilling and production in order to raise prices. With many economics struggling worldwide, I find it doubtful this will happen anytime soon. It will be interesting to see how it all plays out!

 

One thought on “Oil Prices Up

  1. Ryan Leung

    Many companies like airlines are also benefiting from this oil price drop. I do agree that oil prices will rise soon when the supply of oil decreases. Companies should take advantage of this temporary price drop and utilize on profit making!

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