Bad News is Good News for Oil Prices?
You may have noticed dropping gas prices near where you live, all around the world gas prices are dropping to unprecedented levels. Since the beginning of 2015 prices have dropped below $1 per gallon. The question is, how are these gas prices going to affect all of us?
Another cause of the lower oil prices comes from extra oil production. With Iran’s meeting all of the measures in its nuclear deal the sanctions placed against the country have been lifted allowing it to export oil. Currently the world produces over a million more barrels of oil a day than it uses. Iran plans to continue increasing its production by the end of 2016, adding an additional 1.5 million barrels of output.
The uncertainty in the markets around the world makes people less likely to spend free time driving and as such lower the demand for oil. A lower demand for oil leads to surplusing of oil and lower gas prices.
Low oil prices are good news for the average person because they spell low gasoline prices at the pump. Extremely low prices though could spell bad news in the long run. The countries that produce oil rely on the oil for a majority of their income. Without the income from oil countries like Saudi Arabia and Iran will see a downturn in their economies. China has already started to see an effect from this.
While the prices of gas are low there is speculation that they might rebound. Past trends have shown that low prices don’t stay low. The global economy is always changing and there are already signs of the stock market starting to knit itself back together. History shows that when the market reaches prices this low that it is the perfect time for people to start investing in oil again to bring the prices back up.
In the past when this has happened the prices of oil rebounded so high that people didn’t know where it would stop. There is no sign of when this turn will happen though and the lower the prices go first the higher they are likely to rebound. This is because if the prices go too low companies will not be able to keep afloat, when they go out of business the production of oil will be lower causing prices to be higher.
Opec and the United Arab Emirates recently raised the hopes that a deal would be reached in cutting the production of oil down to only the necessary level to raise prices. Prices on oil raised slightly but there is no sign of a long term deal and as such there is no sign that the downturn in oil prices will reverse. Despite the climb in prices this last week, weekly oil prices still finished in the red.
There are many market professionals who think that oil prices will continue to drop for the time being. CNN has stated that they believe that oil prices will drop down to $10 a barrel. Marketwatch predicts that prices may reach $20 a barrel but not $10. Currently, there is no sign that prices won’t drop down this low. Prices as low as $10 a barrel have not been seen since 2001.
Low oil prices are good news for many people for now but they could spell bad news in the long run for the global economy. Because of the potential downturn of the economy it would be a good time to make investments to protect you against the bad economy. Precious metals can help hedge you against bad markets. If you are considering rolling over parts of your retirement funds into gold or other precious metals you might want to continue reading here.