Domestic oil prices are being priced lower than ever, however this wasn’t always the case. It was not so very long ago that analysts were sceptical the price of crude oil would fall below $30 a barrel. After all, in January 2014, crude oil was selling for more than $100 a barrel, which was hitting UK consumers pretty hard. Today the situation is very different. The price of oil has plummeted in the last twelve months and it’s now has reached $30 a barrel.
Expert economists at the Royal Bank of Scotland are predicting crude oil could fall to around $16 in the not too distant future whereas another large bank, the Standard Chartered, is predicting oil will drop below $10 a barrel. Is this economically viable?
Politics and Oil
Domestic oil prices could be significantly lower because of politics. Saudi Arabia is the biggest oil producer in the world. In the past, when there has been a glut of oil, Saudi Arabia has reduced its oil output to artificially prop up the market and ensure prices stayed relatively high. This time, it has refused to do so.
Its neighbour, Iran, is keen to increase production from its own oil fields following the lifting of US sanctions of Iranian oil imports, and if Saudi Arabia slows down production, Iran would be in an excellent position to grab back a chunk of the market. However, tensions between the two countries are hovering around the ‘glacial’ level, so Saudi Arabia is not keen to give an inch.
There is also the US factor: shale fracking has allowed the United States to massively increase oil production and it’s now a major producer, which doesn’t please the other big oil producers much; hence another good reason for the Saudis to drive any and all competition out of the marketplace.
How Long Will Oil Production Stay Economically Viable?
If the price of crude oil continues to freefall, many of the smaller producers won’t be able to sustain production. The low prices are already beginning to hurt North Sea oil production, as was evidenced by the BP announcement that 600 jobs would be going.
But what is clearly very bad news for the oil industry is very good news for consumers. Domestic oil prices for heating are now lower than they have been for a long time, so stock up now and you can make great savings!
For more information on our heating oil prices and services visit our website today.