It's been stated that oil prices will continue to grow since the Middle East's largest producer is Saudi Arabia. The rationale behind this is obvious: the more stable the economy of this oil-producing nation, the higher the amount of oil. As you can see in Figure 1, an elongated period of sustained oil prices was interrupted at the beginning of the 1973 oil shock Adam Ferrari. In reality, both the Yom Kippur War and the Iranian Revolution caused a sharp rise in oil prices, which appeared at the end of the seventies. Since that time, there have been comparatively few oil price increases.
This time around we are expecting an even stronger response to oil shocks. This is because the USA is not a reliable petroleum manufacturer. We're currently relying on Middle East producers like Iraq and Iran to fill our needs. These nations are facing severe political problems, and their capacity to export oil may also be limited. These are all the factors behind the increased expectations concerning oil rates.
Another important cause of the expectations for price rises comes in the prospects of further US economic growth. Since the world's largest manufacturer of natural gas, the US has to continue its growth in the future. However, we are already seeing signs of inflation from the US: as unemployment rates begin to rise because of increasing inflation, the cost of oil will wind up higher than previously.
The prospect of further US economic development is thus a significant aspect for oil prices to have an effect on. But, we must keep in mind that oil prices shouldn't be expected to rise according to the trends seen in the past. The world's strongest market, China, is also likely to confront some short-term shocks. To some investors, the current downturn in China's market may have been among the main reasons for oil prices to decrease lately.
It seems that the US may continue its recovery process this year. Recent reports suggest that the US national budget program is providing a helping hand to oil companies to cancel the recent volatility in global markets. Oil futures prices appear to have experienced a regression-based character in recent months, which might continue until the close of the year. A regression-based index may be considered a bearish sign, since it suggests that the present price of oil will probably fall over time.
Some traders believe that the recent spike in global demand has generated a sudden sharp drop in oil prices. They argue that the recent decline in global oil production has resulted in an oversupply on the market. This oversupply will result in traders expecting oil prices to drop further. The decreasing demand is being met by traders who are holding on to oil futures contracts long-term. If the traders are right about this prediction, then we might see further falls in the near future.
