Oil Prices Update Nov 2018

From the recent high of $75 to the recent steep drop, it may seem like oil prices are volatile and antithetical in regards to the US energy information prediction for its price. However, it is important for investors to recognize the distinction between geopolitical influences on oil prices and the influence of supply and demand.

The sharp spikes and dips in oil prices since February are in large part due to geopolitical issues that result in direct intervention in oil prices. Despite this intervention, however, supply and demand are the ultimate determining factor as witnessed over the past months.

Current Oil Prices

Predicted Oil Prices from the US Energy Information Administration (dotted line)

As you can see we are close to prices that were predicted back in Jan 2018 based on supply and demand.

Moral of the story:

Prices are determined by supply and demand (i.e. fundamentals) over the long term.

 

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