Evolution of oil prices

You often hear about oil as a profitable, long-term investment due to bullish oil prices. However, to better understand how oil prices operate, and to thus better assess their rise prospects, here's a reminder of their historical evolution and some practical explanations.

 

Brief reminder about oil as an asset:

Before discussing the historical development of oil prices, it is important to remember how supply and demand for this asset actually operate. Indeed, we know that oil is considered a raw material widely used by the global industry, and that its production is spread over several countries such as Russia, Saudi Arabia and the United States. These are followed by the production of North Sea's Brent oil. Due to its scarcity, this type of oil has become more expensive than WTI, which is widely traded in the financial markets.

Regarding oil demand, it obviously comes from all regions of the world, although certain countries like China are very large consumers because of their strong industrial growth. Among the major importers and consumers we find the European Union, Japan and the United States.

From these data, specifically the ever-increasing demand, experts continue to argue that crude oil is expected to reach its production limit by 2050, posing serious problems as peak production is attained. It is therefore logical that prices follow an upward trend. Oil is indeed a non-renewable natural resource that is doomed to depletion because of large extraction volumes.

 

The phenomenon of oil shocks and their influence on the evolution of prices:

We often hear of oil shocks as moments prone to sudden surges in oil prices. Many of these shocks have indeed marked the history of the black gold, starting with those of 1973 and 1980, which led to a dramatic rise - three-fold- of oil prices in a few weeks. The barrel reached $ 40 in 1980, to oscillate between $ 15 and $ 35 between 1986 and 1999.

The Gulf War in 1991 led to a further price appreciation. From this period onwards, the price of oil been exclusively on the rise, with the 3rd oil shock of 2003 and peaking at $ 145 in 2008.

 

Dips are frequent but short-lived:

Even if the long-term trend of crude oil remains firmly bullish, this broad trend is sometimes punctuated by bearish micromovements. This was the case for example between 2008 and 2009, with a drop from 145 to 40 dollars a barrel. This decline has nonetheless given way to a further increase up to $ 100 in 2011.

While supply and demand are relevant factors, they are by no means the only ones influencing oil prices. Energy policy decisions, for example, also play an important role in this respect. Among other factors, this largely explains the decline in 2011 following the announcement of the IEA to provide 2 million barrels per day for a month.

On the other hand, the effects of rumours and various conflicts currently affecting producing and consumer countries tend to influence oil prices. As said, however, the long-term trend remains firmly bullish.

Investing in the price of a barrel of crude oil:

The price of a barrel of oil, as you have undoubtedly noted, differs greatly and sometimes in only a short time which offers great opportunities for profits for investors. You too can speculate on the price movements of a barrel of oil using CFDs.