A way to get a grip on the petroleum market is to examine what’s happened in the past half-decade. That’s because there’s too much of a tendency to focus on COVID’s effects and a five-year look-back can reveal trends that were in place before the worldwide pandemic hit. Other key factors that help us make informed guesses about the future include the behavior of the new triumvirate of petroleum producers, the effect of electric vehicles, and long-term cycles in the value of a barrel of crude oil.
Consumers, industry executives, and politicians are all wondering about the price of oil. Will it soon return to its pre-COVID price levels, stall, drop before it rises again, or somehow surge back and reach historic highs in response to political turmoil? Those are just a few of the questions on the minds of investors who want to know how to trade crude oil in unusual economic times. For all those stake-holders, but especially for prospective investors in the energy markets, it’s essential to gather information.
The Past Five Years
A look at the per-barrel cost of crude petroleum can tell us a lot about what was going on in the energy industry long before the global virus temporarily stalled and deflated values. For instance, in late 2015, crude was hovering at about $43 per barrel, roughly where it sits today, after all the international crises, the pandemic, political leadership changes, and other events. There’s a lesson here for prospective investors and speculators where commodity prices are unusually difficult to predict but do have long-term benchmarks to which they return, as is the case in the stock market, minus the volatility.
The U.S./Russia/OPEC Effect
Now that the U.S., Russia, and OPEC nations, led by Saudi Arabia, sit atop the world’s oil production leaders, there’s a chance that long-term trends could stabilize. When OPEC nations alone, acting in unison as a cartel, were alone at the top of the producers’ group, there was less competition, more room for fast manipulation, and much less predictability. When three major players share industry leadership, there’s a greater likelihood that value fluctuations will be less severe.
One of the big question marks in the recent energy sector has been whether COVID is coming to an end. There have been false signals before, especially in April of 2020 when markets started to rebound only to be pushed back down when the medical crisis rebounded and more nations went into lockdown mode. As of the third quarter of 2020, all signs are pointing to a final abatement of the health emergency, which means a return to both at the pump and per-barrel petrol values is realistically possible. Already, a barrel of petroleum has rebounded back to within $10 of January levels, which some see as a sure sign of long-term recovery in the energy sector.
Nearly forgotten amid the global health situation is a factor that was already in place as long as five years ago with the widespread success of electric vehicles (EVs). In China, the U.S., and Europe, EV technology has advanced phenomenally in the last two decades, bringing scores of models into showrooms, some of which feature both gasoline and electric motors. Consumers are buying more electric cars each year, which could spell a very slow, but all but certain, downward push on oil prices.
From Now Until 2050
There is reason to suspect that the current $43 price tag of per-barrel petrol won’t hold and that deep forces in the energy industry will push that number closer to $50 by the end of 2021, $80 by the end of 2025, and $100 by 2030. What happens after that is anyone’s guess because the timeline is just too far out to offer any realistic way of knowing how the world’s energy situation will behave more than a decade from now.
The Cost of a Gallon of Gasoline
Consumers are already noticing the return to normal, pre-COVID fuel costs at the pump. Even though it took just a couple of weeks for the major drop in costs when the pandemic arrived, the slow return to pre-virus levels has been slow but steady from late March through late August. That means there’s still a bit of room for those numbers to rise by as much as 10 to 20 percent before they settle back in at early 2020 benchmarks.
Two important factors for consumers to watch are the resolution of the health crisis and political turmoil in the Middle East, particularly in Iran, both of which could have significant effects on price levels of gasoline.
This article is for information and educational purposes only and does not form a recommendation to invest or otherwise. The investments referred to in this article may not be suitable for all investors, and if in doubt, an investor should seek advice from a qualified investment adviser.