Despite the record warm winter this season, heating oil and gasoline prices are approaching season highs. This leaves many people asking the same question: Why?!
While there are many market conditions that affect oil prices, Rittenhouse Comfort and Energy Services would like to keep our customers as informed as possible. Here are some of the factors attributing to the current conditions and also some factors that might help lower prices.
What’s causing the prices to rise?
1. Tensions and political unrest in major oil producing regions
- Middle East and North Africa (MENA)
- Specifically Iran and their affect on the entire region
- About 1/3 of the world’s oil is produced in the region
- About 2/3’s of the worlds known oil reserves are there
2. Increased demand in developing/emerging economies
- China, India = more people using oil
3. Investors increasing their positions in oil and energy markets.
- Investors see a higher probability of higher energy prices in the near future – potentially earning them a greater return in the future
- MENA (as mentioned in #1 above)
- Belief in a global economic recovery and increased energy demand
4. Refinery closures and refinery maintenance trouble across North and South America have caused prices to rise in the short term
5. Greek debt crisis is beginning to look more stable (at the moment), and markets are gaining some confidence.
Energy prices could fall if…
1. Tensions between Iran and Israel subside
2. Economic recovery becomes less apparent, however…
- High energy prices could slow energy demand and recovery
- Greek debt default would hurt credit markets and economic activity in Europe
3. Fewer investors believe energy prices will continue to rise, and begin exiting their oil investments
4. Increase in supply availability
- New supply discovery across the globe **
- New production from shale reserves and horizontal drilling techniques in the upper Midwest and Canada
5. Permanent lowering of demand
- Alternative energy
- Improved efficiency
** The above is a brief assessment of current market conditions. It is not a prediction of future price direction. Any current news (including or in addition to the above) will cause changes in market and price direction. One or more of these news factors changing and becoming more or less dominant can produce entirely different outcomes.**