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Oil Price Outlook for 2018

April 6th, 2018

For the first time since the Great Recession, a sharp decline in oil prices began in late 2015.

The average cost of a barrel of crude oil has gone from above 90 dollars in 2014, to under 50 dollars in 2015. Oil prices in early 2016 are barely in the 40 dollar per barrel range.

But what caused this major decrease in oil prices, and how long will it last?

Causes


Lasting Effects and the Future

Because of the large imbalance between supply and demand in the market, the price of oil has plummeted so much that many large oil producers have had to lay off workers. The United States has modestly reduced its shale oil production and offshore drilling by oil rigs as well.

The Organization of Petroleum Exporting Countries (OPEC) has struggled with whether to reduce oil production. However, they haven’t done so yet.

In particular, the organization’s largest exporter, Saudi Arabia, has done the opposite. They are seeking to increase their output to make up for their diminished margins. OPEC removed production quotas, meaning there isn’t a cap on the amount of oil member countries can produce.

While some analysts do see oil prices rising by the end by 2017, the majority project low oil prices for the foreseeable future. What happens if oil prices stay low? Who will benefit? And who will be harmed?

Winners

Consumers, and transportation companies benefit the most from cheap oil prices. Countries that import most of their oil would also benefit a great deal. This would include places like Japan, and the European Union.

Losers

On the other hand, losers would be the major oil exporting countries. This would include much of the Middle East and Russia.

Some financial analysts predict the price per barrel of oil dropping as low as 20 dollars by the end of 2016. That could harm the economies of major oil exporters so much that it could cause widespread political instability.