With Petroleum Stockpiles Shrinking, Demand from Asia Will Shore Up Markets

2016 was an exciting year for petroleum traders, with the price of a barrel of crude crashing to under twenty dollars early on. Not so long thereafter, trading recovered to more familiar levels, with a price of over fifty dollars per barrel prevailing through the latter half of the year. While investors might not need to confront such dramatic developments again in the near future, this comment makes it clear that paying close attention to the markets will still be advisable. Many believe that some interesting developments of other kinds will combine to keep things fresh and a bit unpredictable for quite a while to come.

While quite a few North American shale oil producers were forced out of business when petroleum prices dropped so low, for example, the industry remains quite healthy. In fact, recent indications would suggest that investment levels have rarely been higher, with only a couple of brief blips from a few years back matching these expressions of optimism. If North American producers are gearing back up at the same time that OPEC seems helpless to control production, it might well be expected that another drop in the price of petroleum must follow. In fact, however, there are reasons to believe that developments on the other side of the world will balance out these factors.

Demand for petroleum, after all, is still growing strongly throughout Asia. While demand has mostly plateaued in North America and in Europe, many Asian countries are still gearing up to consume more. Even as initiatives in places like China strive to lessen reliance on fossil fuels, the simple realities of persistent, reliable growth mean that more petroleum will be needed to power these thriving economies.

As a result, many experts feel that even somewhat higher levels of production might not negatively impact oil prices much in the near future. Although global stocks of petroleum remain very high by historical standards, strong and steadily rising demand from Asia could well be enough to deplete these over time. Thanks to this and other factors, it might just be that the price of petroleum could climb significantly higher before the year is out, without necessarily implicating any of the drama that was so common in 2016.