HEAVY IRON NEWS
Oil Will Rebound In 2016
- By Design Team
- •
- 01 Dec, 2015
Experts believe that oil will begin to rebound in 2016, following the events that led to per barrel prices dropping by over 50% within two years. This recovery will likely be driven by an increase in demand, which should slowly stabilize the market and then allow it to begin growing again.
THE OIL CRASH AND OPEC
OPEC has been steadily increasing its oil yields and flooding the market with cheap oii, but this situation is largely unsustainable. The Organization of the Petroleum Exporting Countries were threatened by United States domestic oil production; in particular, the new hydraulic fracturing methods that made it so much easier for the United States to produce large volumes of its own oil. Before fracking, much of the oil used throughout the western nations were imported from foreign countries. After fracking, domestic oil production drastically increased, and contributed significantly to the national economic rebound following the market and real estate crashes.
To limit the effects of the United States oil market, OPEC made the decision to flood the market. The goal of this was both to drive US competition out of the market and increase the general demand for oil; a temporary situation after which OPEC would have created a stronger market. Though the strategy did succeed in reducing the price of oil, it did not succeed in driving United States oil producers out. In fact, United States companies began producing even more oil, and developing technologies that increased the efficiency and cost-effectiveness of oil recovery.
THE PROJECTED RECOVERY OF OIL
Though OPEC was not able to push United States oil producers out, both OPEC and the United States have been able to drastically increase the demand for oil. Cheap plentiful oil has driven a more stable market, even at lower per barrel prices. This will have consequences in the year to come. Though OPEC may continue escalating the amount of oil that they will produce, it's estimated that the United States will start producing less oil. Once the supply goes down, the demand should go up.
Taken alone, OPEC is no longer able to meet the oil demand on a global scale. By pulling back on supply, United States oil producers will be able to stabilize the market and increase the demand, thereby strengthening the market. It's believed that the consequence of these actions should drive oil prices up to at least $60 per barrel in 2016, which will be a significant recovery.
Oil will always be a vital and necessary resource, and thus there will always be a demand for it. Though there are external market forces that have conspired to control the per barrel pricing, the situation cannot last forever. Even the vast oil fields utilized by OPEC will eventually mature and become more difficult to work with; the oil and gas industry requires constant exploration and development. Consequently, even though there may be temporary price fluctuations, there will also always be a rebound.
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