Even When Energy Markets Seem Unfathomable, Supply and Demand Set Prices

The last decade has included plenty of unexpected developments in the world’s petroleum markets. While few investors would ever claim to be able to predict each upcoming price movement, some have come to feel that venturing any kind of guess has become something of a fool’s errand. In fact, though, looking a little deeper will often reveal reasons for recent price fluctuations alongside hints about what might be to come. As new information posted at one highly regarded energy investment blog makes clear, for instance, global petroleum markets are likely to come into balance again very soon in the future.

Last year, of course, was one of those through which investors could be forgiven for losing a bit of faith in the predictability and rationality of energy markets. The plunge to around $20 per barrel that rang in the year shocked quite a few, even among those who were prepared to account significantly for OPEC’s production hikes. The turnaround that followed seemed just as inexplicable to a number of observers, with few believing that either a halving or doubling of price in such a short time span could be justified in basically rational terms. While there might well have been a fair degree of excessive pessimism or exuberance involved in each of those price swings, there were some substantial underlying factors at play, as well.

In fact, those influences are now, in the estimation of a number of experts, entering into a new kind of balance that is likely to boost petroleum prices to a new level before the year is out. While demand has been growing steadily for quite some time, mostly because of an increasing need for petroleum all across Asia, supply is once again starting to tighten a little bit.

With OPEC’s attempt at demolishing the North American shale industry having met with only partial success, some had previously assumed that the effects would be relatively short lived. In fact, however, investment in new projects has remained relatively soft, as has exploration for previously unseen opportunities. With OPEC now committed to dialing back a bit on its production, quite a few analysts therefore reasonably expect petroleum prices to rise as demand remains strong.