Will Oil Prices Ever Recover?

By Joseph H

There has been a massive drop in the price of oil in the past year. Recently, at gas stations, we have been seeing the oil prices rising, but recently, studies show that the oil price will not be recovering to the price of $100 per barrel, as it was before the crash.

Last year, an increase in oil production from OPEC (Organization of Petroleum Exporting Countries), a coalition of countries mainly in the Middle East, Africa, and South America that controls 80% of the worlds oil reserves, and the decrease in demand by the United States (this was caused by an increase in fracking). According to the economic theory of “supply and demand”, this would cause a decrease in price, which led to the crash in oil prices. Due to this, some provinces in Canada have suffered severe crashes within the economy. One of these provinces includes the oil-reliant Alberta. Although it was beneficial to people uninvolved, many oil companies were forced to lay off dozens upon dozens of employees, increasing the rate of unemployment in Alberta.

When oil prices initially dropped, researchers predicted that there was a long road ahead in recovery of oil prices. Some even thought that oil would never recover to $100 per barrel. However, now, there are conflicting opinions on if the oil prices will recover, and if so, how soon it would recover.

Meghan O’Sullivan, a professor at Harvard University doubts that oil will never recover to it previous heights. This is due to the fact that oil is currently oversupplied globally, and that energy production in America has been steadily increasing, decreasing the demand for energy from external sources. In addition to this, many oil companies have not reduced production, and instead increased production in an attempt to maximize revenues. She says that there has been an abundance of energy in 2011 to 2014, and that this energy abundance will continue for a while.

Meanwhile, Robert Johnston, CEO of the Eurasia group, is one of the people who believe that oil prices will exceed $100 once more. He believes that prices will once again be forced to rise, due to the increasing energy demands globally. Paul Stevens from the Oxford Institute for Energy Studies believes that the day that oil prices exceed $100 is near, due to the current volatility in the Middle East.

However, nobody is completely sure if oil prices will recover or remain as it is. Therefore, many companies have been safeguarding against both possibilities. Kevin Lynch, the vice-chairman of BMO Financial strongly suggests taking action to safeguard against the chance that oil prices will never recover, so that those companies will profit regardless of whether oil prices recover or remain the same.

In this time of economic crisis in the energy department, nobody is really sure of which direction this event will take. There are many theories and even more pieces of evidence to support these theories on what is to happen to the oil economy.


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