If you haven’t been tuned in, oil prices have tanked in the recent weeks. They’ve dropped approximately 40% since June this year. The number to know here is that oil prices fell from $115 per barrel to a little over $60 a barrel. It’s crawled back up ever so slightly in the past few days, but not enough to cover up the fact that it’s hit one of its lowest points since the economic crisis in 2008.
The main cause of the oil crash can be attributed to the basic principle of supply and demand. In hindsight, US oil producers supercharged their production since 2008. Their plans were never a hidden secret; especially after taking such a serious hit that year. What really surprised analysts wasn’t the boost in supply, but the lack of global demand, mainly in European and Asian regions. This resulted in an imbalance in the demand and supply, and in an industry that’s so large, even the slightest shift could cause catastrophic differences. In this particular case, oil prices decided to jump off a cliff.
Low oil prices are predicted to benefit consumers who reside in oil importing countries, such as China, Japan, and Europe. But the biggest benefactor here is the US. But what does this mean for traders? Well, it’s still a little early to tell. But one thing’s for sure is that oil prices are a commodity. And just like every other commodity, its value will always be retained. That’s the nature of limited resources, and until the world no longer has to rely on oil for energy, oil is expected to hit its initial valuation. What’s unclear at this point is exactly how long it will take to climb back up.
Another vital factor worth mentioning is whether oil prices are going to sink any lower. We won’t know this until one of the big guys decide to make a move and cut down on supply, but until then, there really is no indicator of it swinging in either direction. Right now, the oil crash is a massive topic, and it’s only going to get even more significant as we roll into the next year. So stay tuned for further updates.