Another Drop in Oil Prices Projected

Monday, March 16, 2015

With oil prices having dropped immensely over the past year, analysts are indicating there is likely another price fall in the very near future. Even after having stabilized over the past month to about $50 per barrel, there are signs on the horizon there will be a another freefall to possibly as low $30 a barrel.

Indicators as of late have been performing well overall during the past month. With oil prices having dropped over 60% since June 2014 to six-year lows, prices have bounced back to relatively stable figures. Moreover, steep drops in the US rig count contributed to the price rebound.

What’s good for the oil industry may not be what the typical American oil consumer considers beneficial. The higher oil and gas prices, the better the industry is performing. When oil prices were nearing $5 per gallon, for instance, the Texas Oil boom was exploding. All that has come undone as the boom went bust. But with oil prices up by over $10 a barrel in the month of March alone, to the casual observer, the market is performing well.

A rebalancing triggered by the price collapse has yet to run its course and there are warning signs the bottom hasn’t hit looming on the horizon. These warning signs, according to the International Energy Agency (IEA) monthly report, are based on indicators the U.S. might soon run out of spare storage capacity. This will subsequently put pressure on the price of oil this spring, as much pressure according to some brokerage houses to drive prices as low as $30 per barrel.

This outlook on futures is in great part due to fewer buyers of oil and in great part due to demand being historically lower in the spring. It is quite evident things will get worse for the oil industry - likely over this upcoming summer- before they will get better.