Crude Oil Price Forecast: The Downtrend May Be Over – What’s Next?

The recent price drop in crude oil has been a long time coming. The price of crude oil has been on a downtrend since the middle of 2015, and it had been trading around $45 per barrel for over two years before it hit an all-time low of $28 per barrel in early December 2018. Since then, however, there have been some important technical changes that could indicate that we are seeing an end to the long-term downtrend and perhaps even an early recovery in prices.

Has the downtrend ended?

The price of crude oil has been falling for the last two years. It peaked at $130 a barrel in May 2014, but now sits at less than half that level. This downward trend began in January 2015, when it hit an all-time low of $43.50 per barrel (a drop of over 40% from its peak).

To put this into context: if you had purchased a barrel of WTI Crude Oil on January 1st, 2015 and tried to sell it today—the day after Christmas—you would have made a total return of just over 60%. That’s not bad considering there was no other investment vehicle available at that time!

But what exactly is going on here? Is this just another correction or do we have ourselves another bear market?

Is there a recovery in sight?

The price of oil is a major factor in the economy. It’s worth noting that crude oil prices fell significantly starting in 2014, and have continued to fall since then.

Why has this happened? It’s because there are fewer rigs drilling for oil compared to what was previously happening. This can be attributed to several factors:

  • declining demand from industrial users such as automakers and chemical companies
  • a lack of investment by major energy companies (like ExxonMobil) due to low profits from selling gasoline at prices below cost during periods where there weren’t any significant supply disruptions or political uncertainty about whether the U.S.’s relationship with Iran would go sour again after sanctions were lifted earlier this year
  • poor performance from some major players like BP who sold assets during its restructuring process (the company now produces only small quantities of crude)

In recent weeks, crude oil went through important technical changes. The long-term downtrend may have been over, so a recovery could be ahead.

In recent weeks, crude oil went through important technical changes. The long-term downtrend may have been over, so a recovery could be ahead.

The first change is that there was a sharp fall in the price of oil recently and this is what caused people to believe that we had reached our bottom. This can happen when prices drop dramatically (a lot) and then they recover quickly once they stabilize again.

The second thing is that when prices go down sharply like in late 2017/early 2018, you usually see some sort of correction before they start moving upwards again like they did after falling from $50 per barrel all the way down to under $30 per barrel during this period.*

Conclusion

After a long period of uncertainty, crude oil started to make a recovery in recent weeks. The signs are encouraging and we think this trend will continue. In the short term, the price is likely to stabilise at around $50 per barrel with an upward trend being seen in coming months. This will be good news for consumers as they will see cheaper gas prices at the pumps and lower prices on their groceries at home!

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