There have been some big smiles in the oil world of late thanks to the recent surge in oil prices. The price of oil has fluctuated massively over the past decade but the current surge is promising for the industry, despite the US having just had its largest weekly rise of the year in crude inventories. Oil prices soared to a four year high. So, what exactly is the reason for this surge in oil prices. The answer is that there are a number of factors that are driving up oil prices.
One pressing issue is the supply fear that is sweeping the globe. The main reason for these fears stems from the US sanctions on Iran. Importing nations are unclear how the deficit will be made up. Indeed, other geopolitical uncertainties and unrests have caused panic in the market. In addition to Iran, the disturbances in Venezuela and various countries in the Middle East have also affected the market. With this uncertainty in mind, oil is being purchased in larger quantities to prevent any potential shortages in the future.
While the US sanctions on Iran are certainly a cause for concern, they alone are not responsible for the uptick in oil prices. Another main issue is simply the growing demand for the commodity. The population is growing and with it comes and increased need for energy. Countries are having to supply more and more energy for their citizens, which means importing increasingly large amounts. This higher demand looks set to continue growing in line with the global population and while there is a more concerted effort going into energy efficiency, it is not enough to reduce demand in any meaningful way.
Another issue is the uncertainty this winter will bring to countries around the world. The summer of 2018 saw record temperatures reached in a number of places around the world. There are fears that the winter will be as cold as the summer was hot and governments need to be prepared to supply more energy than usual to heat the homes of their people. Naturally, this means stockpiling oil now to make sure there is plenty to hand when the time comes. Particularly, this is important because when the weather is especially bad, importing oil can be a logistical challenge.
A further factor is the production cuts agreed between Russia and Saudi Arabia on behalf of OPEC. By slowing down the production of oil, this team of countries has brought supply and demand back into balance, despite the influx of oil from US fracking. Now, the glut of oil has been significantly diminished and the market is able to stabilise. The production cut is expected to continue until the end of 2018, by which time the over supply should be thoroughly resolved.
Finally, the economy is in a good place right now and when this happens the price of oil can rise accordingly. However, crude oil has now reached a point where it is so expensive it may start begin to slump soon as demand tapers off. But, at least for now, the price of oil is healthy, which is good news for exporting countries and bad news for motorists.