Oil is one of the world’s most important commodities, and it is a commodity that not only fuels the globe, but it is also one that has a massive, and very important market. The oil market is one that can be very attractive to investors because despite the push towards cleaner fuel, the reliance on this commodity is still very high.
The oil market of 2020 finds itself in an interesting position. Thanks to OPEC and Russia extending their cooperation pact, not once but twice in 2019, there have been some good foundations set for the year ahead. However, there have also been some oddities — like the September 2019 attacks on Saudia Arabia oil facilities; this saw five percent of the world’s oil supply cut off for weeks.
Crude Oil Price Forecast: For 2020 And Beyond
In 2020, there will be some more ‘black swans’ which are by definition unpredictable instances which affect the market already. A price War is brewing in Saudi Arabia after OPEC refused their deal, and the Coiv-19 outbreak is also influencing the entire global market.
However, in instances like this, there are always two ways to play it. The global markets may be down, and oil with it, but a buying opportunity always presents itself in times like this for both Brent Oil, and Crude Oil.
When deciding to look into the oil forecast for its suitability to invest in over the coming year, five years, and ten years, it is also important to understand the market that the asset operates on and how it is defined. Firstly, Crude oil is the naturally occurring, unrefined petroleum product that is typically obtained through drilling.
When you come across the term Brent Crude Oil, this refers to the oil contract that investors will be looking at. In Europe, Africa, and the Middle East, the benchmark is North Sea Brent crude, which trades on the Intercontinental Exchange (ICE) and is more sensitive to overseas news while in North America, the benchmark for oil futures forecast is West Texas Intermediate (WTI) crude, which trades on the New York Mercantile Exchange (NYMEX), and is where the West Texas Intermediate crude oil price forecast happnes.
Oil Prices Historical Overview
The 20th and 21st century overview of the oil market can be defined heavily by the evolution of the middle eastern crisis, as well as periods of oil drought, and oil glut. Oil price is heavily influenced by political movements and uncertainty, especially related to the volatile area of the middle east. But they are also heavily influenced by market movements and that is what makes the last two centuries interesting times to look back over for a forecast into the future.
Oil production and markets started being taken seriously in the 1960s when the Organization of the Petroleum Exporting Countries (OPEC) was founded in Iraq. The entire goal of this organisation was to take control of the oil market as the main contributors to the production of the resource.
However ,with oil production and price control so heavily centralised in these OPEC countries, when political upheaval struck Iran in the 1970s, an oil crisis emerged as the global oil supply was constrained and the price of oil more than doubled.
In countering that, through the 1980s, there was an oil glut when non-OPEC countries like the USA and the UK increased their production to try and haul back some control over the market, but this added supply lowered the price of oil significantly.
During the 2008 financial crisis, the price of oil underwent a significant decrease after the record peak of $147.27. One barrel fell as low as $30.28 during the crisis. It was even argued that this collapse, which came at the time of the financial crisis, was due to speculation on prices before which over inflated Oil’s value.
Current Oil Prices
Currently, the Oil prices in 2020 have taken a massive nose dive thanks to two main catalysts. Firstly, the Coronavirus pandemic sweeping the globe has caused almost every market imaginable to tank to levels not seen since major recessions and depressions.
Additionally, there is an oil price war breaking out after a failed OPEC meeting saw Iran declare, in response to Russia flooding the market, that it too would continue producing oil and even cut prices.
Oil is now trading at just over $30 a barrel, having fallen from $61. $61 is also the price that the price of a barrel of oil opened 2020 on, it did manage to make some ground on that price, rising to $63.27 as the year high, but since the rapid fall in price from the Covid-19 fears coupled with the failed OPEC deal, the price of a barrel of oil has fallen 49 percent to $31.04 currently.
It is becoming more clear that the price of oil is heavily dependent on market and political moves. Firstly, the market influence of the Coronavirus cannot be understated as investors have entered a stage of fear and are not looking to make any sort of risky investments during this time of financial uncertainty.
More so, the oil price war that saw a drop in the price of 30 percent on a single day had already started scaring off investors before the Covid-19 fears had gripped the market. While this all sounds quite negative for Oil prices, it does of course open up a huge buying opportunity.
Top Factors That Affect The Oil Prices
Oil is a commodity that is highly affected by geopolitical events and structures, as well as the global market performance. However, there are a few other factors that are worth considering when examining how the price of oil is determined.
The following factors should always be considered when gauging what the price of oil will do:
- Non-OPEC oil producing countries
- Exogenous shocks
- Global economic performance
- Alternative energy sources
- Strength of the US dollar
- Market speculation
OPEC has positioned itself as one of the most important organisations around the oil market. The collection of oil producing nations have aligned themselves to be very much in control of the production, supply, and regulation of price of a barrel of oil. It is a good thing that OPEC is looking to control the market for oil, as it is a finite resource and left unregulated, would be used up in an unsustainable way. This organisation also takes into consideration other instances where oil’s price can be changed or manipulated, and tries to ride these out. For example, the US has been upping its fracking industry which has led to OPEC warning of an increased supply of oil on the horizon.
While OPEC as an organisation contains oil producing countries, there are other countries that also produce vast sums of oil who are not part of the membership. These are called Non-OPEC oil producing countries. Non OPEC countries are also rather big players on the world economic stage, and include countries like the USA, Canada and China. In fact, the US is the world’s biggest oil producer with 13 million barrels being produced each day in 2017.
Because oil is a commodity so closely correlated with markets and economies, it is highly susceptible to what is known as exogenous shocks; these are economic events that affect the price of a commodity in a way that cannot be explained or controlled — such as natural disasters or wars. An example of such an event was when Hurricane Katrina landed on the East Coast of the USA in 2005 and damaged oil supply lines. People panicked and the price of fuel rose as much as half a dollar in this time of fear.
Like any commodity though, oil is highly affected by supply and demand factors. Global economic performance is one such demand factor that is constantly shifting the price of oil. Major non OPEC countries, like the USA and China, as well as Europe, have the biggest demand for oil but as such, when global financial uncertainty strikes in these areas, the demand for oil usually drops rapidly. This again was seen in the 2008 financial crisis that slowed the globe’s industry and sent the price of oil falling by $100 over five months.
One of the new factors also influencing the price of oil is renewable energy. There is a strong drive in industry and consumerism for sustainable energy, of which oil does not fit the bill. As such, renewable energy sources are becoming bigger, and more popular, which again affects the demand for oil — and thus its price. If demand continues falling, and supply is still growing, the price of oil could rapidly drop in this shift to sustainable energy sources.
Through it all though, the oil price is also heavily affected by the world’s strongest currency — the US dollar. Like many commodities, oil is still exchanged in US dollars across the globe and because of this, a strengthening dollar price can actually make the price of oil fall — albeit nominally if all other factors remain the same. Then, vice versa, if the dollar weakens, oil will often rise.
Finally, as with any investment, the speculation that surrounds the market can greatly impact the price of the commodity. Oil is no different, especially with oil prices being set on the futures market which means the market is trading on a price point in the future. Market speculation happens when news events that can possibly affect oil start to emerge. For example, news on the use of more nuclear power in China can see people speculating on a drop in the price of oil due to less demand, and thus the market can react speculatively.
Oil Price Predictions For 2020
The first few months of 2020 have been rife with bad news for markets and investing. There has long been a threat of a global recession looming, with central banks employing policies to stave it off. But now, with the impact of the Covid-19 outbreak ravaging the global economy, it seems that a catalyst has been found to spark a recession.
Oil, as explained above, is highly affected by global markets, as well as geopolitical uncertainty, not to mention the decisions by OPEC members and those countries who have a stake in the oil production. As 2020 has kicked off, all three of these factors have had a negative move which leaves analysts predicting Oil prices to stay in the $30 range for months.
Amid the OPEC price war and fight for market share, and the impact of the Covid-19 virus, the demand for oil is likely to remain depressed. According to 21 experts surveyed by Reuters, WTI Crude prices are set to average $30.37 a barrel in the second quarter this year and $37 for the full year.
Things are a little better for Brent Crude as it is predicted that prices could average $34.87 per barrel in Q2 and $39.05 in Q3, according to the poll. In Q4, Brent Crude might even climb above $40 to reach $44.08. On the more negative side of things, Goldman Sachs is warning that we may see $20 oil in Q2.
OPEC have also weighed in on their prediction for 2020, and based on extremely low oil growth in 2020, they too have lowered their prediction. OPEC sees global oil demand forecast rising by mere 60,000 bpd in 2020 and is also predicting a global economic growth at 2.4 percent this year, down from a forecast of 3.0-percent growth in last month’s report.
“The tremendous impact that the Covid-19 outbreak had so far on economic growth has significantly impacted oil demand growth in 1Q20 and therefore led to a downward revision to show less than 0.1 mb/d growth for the entire year 2020,” OPEC said in its MOMR.
Crude & Brent Oil Price Predictions For The Future
The current market situation, amid the Covid-19 outbreak, is not expected to last for the long-term, however, its long term effect on the markets may be felt for a few years to come, especially with the threat of a recession also coming from this outbreak. This could ripple out and effect the long term oil price forecast, and will need to be taken into consideration.
Oil price predictions long term are still vitally important to the oil investing market as the commodity, although quite volatile, is one that is often traded over longer periods of time. Oil is also a commodity that is still in high demand, and is finite, so it is expected to grow in demand over the long terms. Additionally, the prediction of oil in the long term is something that is important to different groups in the industry.
For example, having a more positive bias for oil price future predictions is something that would benefit OPEC as they want people to buy and invest in oil. However,groups like the International Energy Agency, which was charged with responding to the oil crisis, might be expected to produce alarmist forecasts.
It is for this reason why you can see that predictions from different sectors are usually quite different. The below graphs represent four different players in the oil market making predictions of the price of oil for the next year to five years. (Note, this is before the Covid-19 outbreak.)
Oil Demand Forecast
Taking this into consideration, and the unpredictable nature of future oil price predictions, it is still important to put some sort of estimate as to what will affect the demand of oil, and how that can play out in moving the price. The recent Covid-19 outbreak is a clear example of an exogenous shock, as no one could have seen this coming. But now, people will predict its impact on the global economy and how that will influence the demand for Oil.
This instance is one of more immediate effects. Covid-19 is set to work its way through the globe and soon die off, but its ramifications could leave the economy in ruins, and thus have a major impact on the price of oil for the next couple of years.
However, there needs to be other considerations taken into effect. For example, as the globe rapidly modernises, and the concerns about global warming increase, there is expected to be an uptake of renewable energy sources which will also affect the global oil markets.
Then again, the current Price War that has broken out in OPEC is also seen as a short term threat to the price of oil, but it too can have longer ramifications as the already hostile Middle East area grapples with infighting and uncertainty.
If the Middle East remains a hotbed of geopolitical upheaval, the price of oil again can be impacted — but this impact may be positive for the price of oil as it could lead to lower supply in the coming years.
MarketWatch’s Ivan Martchev said in a recent story noted that the slowdown in the Chinese economy following the Covid-19 outbreak would have global repercussions and would hit energy stocks particularly hard.
“If the price of crude oil does what it did in 2015 — culminating in the January 2016 low of $26 per barrel — there is substantial downside for the stocks of both integrated energy companies and the more leveraged oil service ones,” Martchev wrote.
Oil Price Forecast Next 5 Years (Until 2025)
Oil’s price, especially over a period of five years, can be very volatile and change drastically. For example Brent Crude prices fluctuated from as high as US$125 a barrel in 2012 to as low as US$30 per barrel in January 2016. So, even with the markets in turmoil through 2019, and into 2020, there could still be a very different outcome in the price by the time 2025 comes around.
However, it is still believed that the same determining factors will be at play when it comes to determining the price of oil. The key factors that determine the demand and supply of oil will stay constant for the next five years, but their impact will vary greatly.
“As we enter a new decade, the energy complex feels like it is all cascading towards a race to the bottom,” wrote S&P Global Platts Analytics in a research note. “All energy commodities are competing for a share of finite downstream demand, whether it be in industry, refining, power generation, or petrochemicals. At the same time, continued growth in renewables, efficiency gains, and increased penetration of EVs [Electric Vehicles] and hydrogen will limit the overall call on fossil fuels.”
Essentially, there is a widely held belief that oil prices in the next five years will be influenced by one of three things. Firstly, supply disruptions could lead to a huge surge in the price of oil where it might triple in value and end up at $90 a barrel. The reasons this could play out is because if the International Maritime Organisation finds the shipping industry unprepared to the new regulations, and OPEC lacks capacity to mitigate the worsening production in Libya and Venezuela, as well as Iran sanctions.
A more modest prediction sees OPEC continuing to grow and push its weight around, despite increased production from the US. If OPEC does retain control, experts forecast the average crude oil prices in the $60-$70 range, but as for the crude oil forecast for next week, for example,things are less positive.
Then there is a very real case of oversupply and stagnation, especially seeing as how 2020 has kicked off. Oil prices may only just hover off the $30 mark due to a decrease in demand from the resulting trade war and the period of increased economic nationalism could end up the economic expansion. OPEC may also stop supporting oil predictions and defend their market share.
Oil Price Prediction For Next 10 Years (Until 2030)
The next decade in the oil price forecast 2030 may well be more positive than the next five years as the additional time allows for a recovery from a global recession, as well as a period of reinvigoration and growth. In fact, there are many forecasts that are putting the next demand peak for the oil price in 2030.
The International Energy Agency (IEA) said in its latest annual World Energy Outlook.
“Oil demand for long-distance freight, shipping and aviation, and petrochemicals continues to grow. But its use in passenger cars peaked in the late 2020s due to fuel efficiency improvements and fuel switching, mainly to electricity. Lower battery costs are an important part of the story: electric cars in some major markets soon become cost-competitive, on a total-cost-of-ownership basis, with conventional cars,” the IEA said in its outlook to 2040.
Another important factor for the next 10 years is how OPECwill deal with the growing market share that the US is taking in the energy stakes. The US and its Shale Energy production is a big threat to OPEC, but the shale energy is slowing.
But US production will still grow in, the oil price forecast 2020 sees more than 1 million bpd, according to nearly all major forecasts. U.S. shale production is expected to start declining in the middle or late 2020s, according to OPEC’s estimates.
Why is the oil price dropping?
Oil’s price is greatly affected by a number of external political and economic factors. Through 2019, and into 2020, there has been a rapid upheaval in the global markets with a threat of a recession, and the outbreak of the Covid-19 virus. More so, within OPEC, a price war is brewing where supply is flooding in without any increased demand.
Will oil prices go up?
Oil remains an important commodity globally and will have a demand for many years to come. The current climate is one of the lowest places for Oil to be in right now and from here it is hard to see it go lower, but understandable that it will rise.
Who controls oil prices in the world?
Oil prices are mostly determined by an open market of speculative traders and buyers and sellers. However, the market is also regulated and controlled by organizations like OPEC who do their bit to control this finante resource.
Who is the largest producer of oil?
As a stand alone nation, the US produces the most amount of barrels of oil per day. However, when groups collaborate, such as OPEC, these groups produce far more than anyone nation and they work together as one entity.
Summary: What is the future of the oil?
Oil remains a commodity that is vital to how the world and the economy works. It is a commodity that is looking to be phased out, but this phasing out is still more than 50 years away and thus has an important role to play going forward.
But, more than this, the market of oil is also an important one and it is a market that attracts a lot of investors as it has many different facets that influence it, providing investors big opportunities with both the dips and thr rises in price.
Even with today’s price of oil being so low, and in a real state of panic, for some investors this represents a buying opportunity that not many will probably see again in their lifetime. For this reason, it is worth looking into investing, and starting up is not as difficult as many would believe. PrimeXBT, a multi-commodity trading platform has quick and easy sign up that allows investors to begin trading in oil in a matter of minutes — sign up here.
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