Key facts
- Oil prices are plummeting due to several different factors and are down 9% this month.
- OPEC made voluntary supply cuts in November to try to keep the price from dropping too far.
- China has cut imports and the U.S. is near record production, further depressing the price.
Many consumers may find it difficult to work up any sympathy for them, but it’s a tough time to be an oil company right now.
The price of oil has taken a beating in December, with steep drops in the cost of a barrel day after day. In the first week of the month, oil prices were down 9% in December and have fallen below $70 a barrel, its lowest level in six months.
The drop has been so steep and so sudden that BetOnline and other betting sites taking action on the year-end price of a barrel of crude have moved the over/under cutoff mark lower. Currently, BetOnline is taking action on oil being over or under $69.50 a barrel at the end of 2023, which is a full four dollars lower than they’d set the cutoff in late November (find out more with our BetOnline Review).
Made in America
There’s no one reason for the drop in oil prices. Basically, it’s a supply and demand issue. Usually, producers are on the positive side of that famous economic curve, since every industrial society depends heavily on oil to keep machines running and people moving to and from work.
Lately, however, supply has caught up with demand, and oil isn’t as scarce as it used to be. U.S. companies are at record levels of oil production. American companies produced 13.2 million barrels a day in September, which is the highest level ever, and made up more than one-eighth of global oil output during the month.
The U.S. is responsible for 80% of the increase in world oil supplies this year. The boom in the American oil industry is fueled by technology, which makes companies more efficient at tapping rich oil fields in Texas. The country is also looking to be less dependent on foreign oil after the war in Ukraine brought energy security to the forefront in areas of Europe.
China Builds a Wall
With the U.S. heading into an election year, and a war going on in the Middle East, it’s hard to imagine America slowing oil production anytime soon. Gas shortages and high prices at the pump are not what either party wants to see heading into the election. Many analysts expect the price of oil to stay between $68 and $72 well into next year.
Oil companies would prefer that the price were hovering around $80 a barrel, and, while it may not get there anytime soon, it’s a good bet that they’ll do what they can to keep it above $70. Our prediction is that it will end the year above that psychological benchmark.
Oil Over $69.50 a Barrel at the End of the Year (-120) at BetOnline
While the U.S. is bumping up the oil supply, China has seemingly cut its demand. In November, China posted a year-over-year decrease in the amount of oil it imported. Earlier estimates had forecast that China’s demand for foreign oil would continue to increase and not peak until around 2030, but China imported 9.2% less oil in November than it did in November 2022, leaving many companies with surpluses of crude. Globally, the oil inventory was just under a billion barrels in November, and the glut is pushing prices down.
Possibility of a Bounceback?
Oil producers are trying to stop the free fall of the price of crude. In an effort to bolster the price, OPEC implemented voluntary supply reductions in November. That’s kept the price from falling even more than it already has. And, as oil drops below various milestones –$70 a barrel was the first– there are two possible reactions from the market.
One is the fear that a recession may be imminent, as the lack of demand for the world’s oil could mean an economic slowdown is occurring. That might accelerate the drop in oil prices as speculators flee the market out of fear of recession.
The second possible reaction is in the opposite direction, as speculators take advantage of the opportunity to buy a valuable resource at a deep discount and push the price back up as their demand surges.
The Pick
With the U.S. heading into an election year, and a war going on in the Middle East, it’s hard to imagine America slowing oil production anytime soon. Gas shortages and high prices at the pump are not what either party wants to see heading into the election. Many analysts expect the price of oil to stay between $68 and $72 well into next year.
Oil companies would prefer that the price were hovering around $80 a barrel, and, while it may not get there anytime soon, it’s a good bet that they’ll do what they can to keep it above $70. Our prediction is that it will end the year above that psychological benchmark.
Oil Over $69.50 a Barrel at the End of the Year (-120) at BetOnline
