- The price of oil has increased due to increased demand for oil for industrialization and to meet the world demand for energy.
- The oil prices continue to climb higher up to $60 a barrel
- This increase in demand for oil is due to the fact that people are beginning to recognize the potential for oil reserves that will last longer than current supplies can supply the world.
The oil prices continue to climb higher. The price of oil has now recovered after it dropped to a five-year low. In fact, the price of oil is now up over $60 a barrel, which makes many people wonder what will trigger the price of oil to go even higher.
“The biggest driver for the latest surge in prices seen through last week was a sharp upturn in expectations for economic and oil demand recovery on signs that the coronavirus may finally be in retreat,” Vandana Hari, founder of Singapore-based oil markets data firm Vanda Insights told the BBC.
The price of oil has increased due to increased demand for oil for industrialization and to meet the world demand for energy. The demand for oil has been increasing worldwide especially in Europe and Asia. So the oil prices are caused by demand.
This increase in demand for oil is due to the fact that people are beginning to recognize the potential for oil reserves that will last longer than current supplies can supply the world.
These reserves are referred to as oil sands. Oil sands will only last about ten years before they become worthless. So if the current demand for oil is greater than the ability of these oil reserves to produce them, then prices of oil will naturally increase.
However, this increase in demand for oil is only for the short term, and we will soon find that the overuse of these oil reserves will deplete them.
“The recovery is proceeding at a faster rate than people perceived,” said Ed Morse, head of commodities research at Citigroup Inc. “The demand recovery is going to look stellar. The inventory draw is significantly greater than what many people thought.”
To illustrate this point, if the price of oil were to reach nine dollars a barrel then by the end of the next decade, oil reserves will be depleted worldwide. Now, this does not mean that prices will go lower, but it will show that demand far outweighs the ability of the oil companies to supply it. The price of oil will then continue to climb until it meets or surpasses the price of oil reserves.
“We are drawing stocks,” said Ben Luckock, co-head of oil trading at Trafigura Group in Geneva. Prices have recovered well and “can seriously perform come summer both in crude and in products,” he said.
The more demand for oil, the lower the prices will be, and the lower the prices are, the more people will be willing to invest in it. But how do investors get an advantage of this?
By investing in oil futures. Futures contracts provide investors with an alternative to actually purchasing oil in the short-term (here on oil futures).
When oil prices rise above nine dollars a barrel, then investors will become interested in buying oil futures. In order to determine which futures contracts offer the most attractive price, there are a few things to consider.
The price of oil itself varies depending on the circumstances around it, for instance, the price of oil during the Middle East crisis, the price of oil when it goes above 60 dollars a barrel, and even the price of oil when it drops below 60 dollars a barrel. All of these circumstances contribute to the market value of oil futures.
“Not only did China have a V-shaped recovery but they’re actually back into significant growth mode,” Royal Dutch Shell Plc chief executive Ben van Beurden said.. “We are quite optimistic about what it is that we are seeing in China.”
Another thing to consider is the price of oil in US dollars. Oil prices are always going to be determined by the US dollar. Oil prices will tend to rise as the dollar weakens versus the pound. The opposite is also true – when oil prices go down versus the dollar.
With this said, it would make sense to purchase oil futures when oil prices are low. This is because you are locked in at that price without having to wait for the prices to go higher.