The Oil Market

January 4, 2015

By: Ryan  Ball

Recently we have seen a major decline in the prices of oil, such a decline is beneficial to us consumers.  The decline in price per barrel has declined 25% since the latest peak, which took place in June.  The reasons for such a decrease in oil prices comes from a decrease in the demand for the commodity in China, India and Europe, that coupled with the fact that the United States is currently producing large amounts.  The decrease in demand coupled with this supply boom has lead to gasoline prices in America falling a national average of 30 cents within the past month, believed to be the lowest level since 2010.  The decline is expected to continue within the coming weeks.  Price at the pumps is not the only place affected by the new price levels.  This winter is forecasted to be warmer than last winter, as well with the drop in price in heating oil, home heating prices are expected to decline nationally as well.  These drops in oil and natural gas are saving individuals huge dollars within the personal economy.  This oil plunge is a good thing with the ability to boost the economy due to the money being saved on the commodity being spent elsewhere.  This collapse in oil prices does not mean death to the industry however.  There is the belief that if oil prices slip below $70 a barrel, the North American energy renaissance could collapse.  This however is false since American shale is still booming, and even at a price of $40-50 dollars a barrel, these companies can still remain profitable.  The next is the chance of consolidation.  Like we saw with the airline sector, the same may happen within the energy industry, a wave of consolidation has the ability to make the industry stronger.  After consolidation, the airline industry became one of the top performing sectors, this may be the future for the energy sector.  Regardless of what happens in the near future, lower prices are not a bad thing.  Big oil companies such as Exxon Mobil and Chevron are not going anywhere.  They are relatively cheap right now but are still solid in terms of revenue streams and financial statements.  On top of this, the world economy is growing, early it was mentioned the decreased demand in China and Europe but as a whole, the world economy is increasing.  The take away is to enjoy these low oil prices while we can, and to not worry about the sector as oil and gas stocks are not dead yet, and we are sure to see a rebound in the near future.

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