Oil price fluctuations from 2012 to 2016 and future predictions

Oil prices across the globe are characterized by major swings and fluctuations, which have attracted considerable attention from scholars, policymakers, and practitioners. The increased attention in oil prices are attributable to the fact that they have significant impacts on the global economy. Based on academic literature, oil prices fluctuate for various reasons including supply disruptions, changes in global demand, and precautionary intentions. For instance, in the aftermath of the 2008 global economic recession, oil prices fell because of an overall decline in global demand (Lee & Huh, 2017). Fluctuations in oil prices have been evident since 2012 to the end of 2016 because of various factors that contribute to changes in these prices. Despite these various factors, there are several measures that are utilized to predict oil prices in the future. This paper discusses the reasons for changing oil prices, oil price fluctuations between 2012 and 2016, and prediction of oil prices for the next five years.

Reasons for Changing Oil Prices

As previously mentioned, oil prices have been characterized by major swings and fluctuations, which have received considerable attention because of their potential effect on the state of the global economy. According to Caldara, Cavallo & Iacoviello (2016), a decline in oil prices despite of whether its caused by supply or demand factors depresses economic activities worldwide, especially in emerging economies. Policymakers, practitioners, and scholars have continued to examine factors that contribute to fluctuations in oil prices. These attempts have been geared towards understanding oil price fluctuations and making predictions on future prices of oil in order to promote growth in the global economy. The existing academic literature highlights several reasons that contribute to changing oil prices including changes in global demand, precautionary intentions, and supply disruptions (Caldara, Cavallo & Iacoviello, 2016). The changes in global demand, which in turn contribute to major swings in oil prices, are fueled by different economic factors. For instance, in 2008, the world experienced a global economic recession, which contributed to an overall decline in demand that in turn resulted in decline in oil prices. According to Lee & Huh (2017), oil prices during this period fell and started to increase in early 2009 after the impacts of the economic recession. When supply disruptions occur, they affect the global demand for oil, which in turn generates major swings and fluctuations in oil prices across the world. Similarly, precautionary measures undertaken by industry players in handling this commodity affect supply and demand aspects, which contribute to fluctuations in the prices of oil. The other factors that contribute to fluctuations in oil prices include decrease in the revenues of economies or countries that produce oil and uncertainties regarding the maintenance of future oil producing capacity. Moreover, oil prices experience major swings/fluctuations due to decrease in the assets of major international oil companies and decline in investments in crude oil development by the major stakeholders (Asia Pacific Energy Research Centre, 2016).

Predictions of Oil Prices between 2017 and 2022

With regards to the rate of growth, it is projected that there will be an overall descending trend in the growth in demand for oil until 2040. This is attributable to various factors including structural changes of worldwide economy, the development of shale gas in the United States, changes in government policies, and consumer reactions (Lee & Huh, 2017). However, oil prices are expected to increase between 2017 and 2022 as shown by recent trends and statistics. According to predictions by The United States Energy Information Administration, oil prices will average $55/barrel in 2017 and $57/barrel in 2018 (Amadeo, 2017). The predicted increase in oil prices it attributable to decline in market volatility unlike in 2016. On the other hand, commodities traders forecast that oil prices between 2017 and 2018 will range from $46/b to $63/b (Amadeo, 2017).

In the period between 2018 and 2022, the prices of crude oil are predicted to average between $50 and $70 per barrel (Arab News, 2017). These predictions are based on the fact that the global demand for oil outpaces supply on average during the period of forecasting. As reported by the Bank of America Merrill Lynch, the global demand and consumption of oil has increased by 3.6 million barrels per day over the last two years, which represents the best demand rate since 2010/11. The expected recovery in oil prices within the next five years is attributable to various factors including the decision by OPEC and non-OPEC countries to end a two-year price war and agreement to lessen production by 1.8 million barrels per day. Following this agreement, OPEC is now accelerating a balance in the global oil market through reducing a three-year surplus by lessening production. Secondly, the expected recovery of the shale oil production in the United States will enhance efficiencies and contribute to long-term oil prices of more than $50 per barrel.

In conclusion, oil prices are usually characterized by major swings and fluctuations because of different economic factors that affect supply and demand aspects in the global oil market. These fluctuations and major swings have been issues of major concerns to policymakers, practitioners, and scholars because of the impact of oil prices on economic development and growth worldwide. Some of the major factors that contribute to changes in oil prices include supply disruptions, changes in global demand, and precautionary measures. In the period between 2012 and beginning of 2014, oil prices surged because of supply shocks such as the Arab uprisings. This was followed by a period of a sharp decline in oil prices between June 2014 and January 2015 because of supply shocks, particularly oil production factors. This was followed by a period of relatively stable oil prices until the end of 2016 because of market volatility that contributed to low oil prices. It's expected that oil prices will increase to an average of between $50 and $70 per barrel between 2017 and 2022 because of structural changes in oil production and changes in demand.