Recent Factors That Have Affected The Price Of Oil

In 2016, energy investors saw major fluctuations in the price of oil, beginning with a drop to $20 a barrel at the beginning of the year and rising to more than $50 a barrel by the end of the year. In 2017, the market is experiencing a more gradual rise in oil prices so far. Several factors have played a role in the recent price swings in the global oil market, including the interests of Saudi Arabia, those of other OPEC nations, and changes in the U.S. oil industry.

Saudi Arabia

In 2016, Saudi Arabia was insisting on increasing production to lower oil prices and maintain their market share. At the same time, the government was starting to privatize the national oil company, Saudi Aramco, to decrease the economy’s dependence on oil. Unfortunately, the increase in oil production had the effect of driving prices down and lowering the profits the government needed to invest in other sectors of the economy. By the end of the year, Saudi Arabia had reversed its policy and fallen in line with the interests of other OPEC nations.

Other OPEC Members

Because of financial crises at home, several other OPEC nations, including Venezuela, Libya, and Algeria, were advocating for decreases in oil production in 2016. Venezuela has suffered major food shortages, while Libya is experiencing a political conflict that is draining the national coffers. Consequently, these nations needed higher oil prices to bolster weak economies. Near the end of 2016, Saudi Arabia agreed to cut production and allow prices to rise.

U.S. Oil Industry

U.S. oil production declined in 2016 as a result of OPEC’s price wars. Off-shore drilling projects have been tabled, and investments in fracking wells have declined. Some independent oil companies in the U.S. have been forced out of business, but some have been merged with larger oil companies. This decrease in supply, combined with an increase in demand from Asia, particularly China and India, may drive prices back up, making shale oil more profitable and worth a heavier investment in fracking wells.

Energy investors are anticipating modest oil price increases, but nothing dramatic is on the horizon. However, the price of natural gas has been rising steadily since 2016 and holds much more promise for investors. Get more information about natural gas online from my site.