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How is oil markets analysis done?

How is oil markets analysis done

Today, oil is the source that has the most impact on the global economy from non-renewable resources. The reason for this is that oil is still the most important energy source for many sectors and is a direct raw material for some sectors. In this context, the change in oil prices directly affects the production and therefore the economy. Although abnormal increases in oil prices are a danger bells for the global economy, catching the upward trend can be quite profitable for investors. So what are the factors that affect oil prices and how can predictions be made for future prices by following these factors?

Oil prices are determined in line with the supply-demand balance, as in every value. However, oil markets are an oligopoly market. It can be said that OPEC (Petroleum Exporting Countries) formation is at the center of this oligopoly structure. As a matter of fact, most of the countries other than OPEC members use the oil they produce in the domestic market, and a significant part of the oil imported to the world is supplied by OPEC member countries. In this context, OPEC’s statements give very precise information on oil prices. For example, the statement that there will be a decrease in production almost certainly suggests that the supply will decrease and therefore the prices will increase. Similarly, the market reacting to the decrease in supply with the production figures below the expectations announced by the American Petroleum Institute last month caused the oil prices to increase. In this context, following the developments regarding OPEC and similar organizations closely is one of the most important aspects of making a good forecast on oil prices.

Another factor affecting supply and hence prices in oil is agreements, protocols and laws that directly affect oil production. For example, with the instruction sent by the government of Biden to the internal affairs, it is clear that new production permits will be reviewed, and as a result, new permits are not allowed. It is obvious that such a move will decrease the supply and therefore cause an increase.

Global crisis and disaster situations occur rarely, but when they do occur, they can cause serious changes in oil prices. In general, in global emergencies, an increase in the prices of limited resources such as gold and oil is expected. However, the closing of houses with Covid-19, consumption and therefore production significantly decreased. Therefore, the demand for oil has also decreased and the dollar experienced one of the sharpest decreases of recent times, especially in April 2020. However, with the successive good news of vaccines and the rapidly starting vaccination campaigns, the process of returning to normal started, which again caused an increase in demand and oil prices. In the continuation of 2021, many authorities expect an increase in oil prices. However, developments regarding Covid-19 are critical for at least the next 6 months in terms of predicting oil prices. Scenarios such as experiencing new waves or mutating the virus may cause the demand to fall again, and perhaps even harder this time.

Oil continues to make investors happy, especially since May of the last year. However, even if the epidemic disappears from our lives completely, it does not mean that prices will increase continuously. The investors should always keep in mind that especially organizations such as OPEC do not use their production capacities completely, and reserves where oil is not extracted because there is still not enough return, and even if demand increases, the supply can be increased rapidly.


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