News
Oil Market Update - to date
Thursday 25th June 2009
As anyone who keeps a close eye on oil prices will know, oil hit a record high price of $147 a barrel in July 2008. Since then it has fallen sharply hitting a low price of just over $34 per barrel in February this year. It has since risen again, more than doubling at one point touching $74 per barrel before falling back a little to just under $70 per barrel as we close out June.
This shows an awful lot of volatility in the price of crude oil and this translates into the refined products we use for running our cars, heating our homes and factories, as well as using to power agricultural vehicles and plant equipment. We do not see quite as much volatility in the cost of these refined products however due to the amount of duty and VAT payable on these products irrespective of the base cost of the oil itself.
There have been a number of factors which have caused this volatility not least the favourite phrase of the first half of this year ‘the credit crunch' or the ‘global economic downturn'. This caused stock markets to fall rapidly, caused banks to stop lending and led to many businesses going bankrupt or at least ceasing trading. This in turn led to a massive reduction in the volume of oil needed to power the industries around the world. This in turn led to surpluses building up in the supply chain around the world. At one point some analysts were uncertain whether one of the main US storage sites for crude oil at Cushing Oklahoma, could fit any more oil in. Cushing has an approximate capacity of 44 million barrels of oil. The price plummeted.
Since February we have seen some more positive news coming out about the state of the global economy. Countries have injected massive stimulus packages to try to get their economies moving again and this has all had some effect. As optimism creeps into the market and companies start looking once again to the future and start filling order books fuel demand is once again picking up, this has led to a revival in the price that we have seen recently.
So where are prices heading next? Well it looks like in the very short term prices are coming down a little as the general feeling is that they have risen too far too soon but it doesn't look like they will come down very far or stay down for very long. We may have already seen the drop off in the price already. Well respected oil analysts general consensus view is that oil prices could reach $85 per barrel by the end of the year and then reach $95 per barrel in 2010. This is taken with a piece of salt these days as it was the same analysts predicting $200 per barrel oil for last year before the drop came!! It does look set to rise to not by the staggering amount or at the dizzying pace it did last year, but one thing is for sure, we will be watching it closely.