Where petroleum prices are heading in the next few years

Gas pricesThe economic power of the oil industry continues to be more influential than any other business sector in the world; that includes OPEC and non-OPEC oil-producing countries like Canada and Russia, and supply chain partners such as oil refineries. When the price of oil jumps up or down, the economic rippling effect is felt throughout the world; sales of hybrids and electric vehicles are affected and geopolitical issues, such as alliances between countries, are impacted.

When oil, gasoline, and diesel prices spiked in 2008, the term “fuel volatility” became commonly known by fleets and consumers. Sales of hybrid electric vehicles jumped up. Investment in natural gas vehicles and infrastructure – and to a lesser extent propane autogas – had a resurgence not seen since the early 1990s. The oil price spike in the summer of 2008 helped push along the US financial market collapse that started in September of that year – and it also supported the introduction of plug-in electric vehicles (EVs) by the end of 2010. Volatility in fuel prices has given car shoppers more concerns for fuel efficiency and more interest in EVs and other alternative technologies. Oil prices, and gasoline and diesel, did drop back down in 2009 but came back up again in 2011. Those prices stayed up and fairly level until dropping nearly 50% in the second half of 2014.

Even though the US and the world had been hit with the Great Recession, the first EVs produced in fairly large numbers were introduced by major automakers before the economy started recovering. When the Nissan Leaf and Chevrolet Volt were rolled out in late 2010, advertisements for the Leaf and Volt emphasized freedom from oil addiction (such as driving by gas stations) and environmental benefits. Tesla Motors had introduced the limited production volume Roadster in early 2008; its Model S, launched in the summer of 2012, had been able to generate enough enthusiasm long before roll-out to support the company’s 2010 initial public offering and large investments by Daimler and Toyota.

Major automakers expect that within the next five-to-10 years, oil price increases and the possibility of more motor fuel taxes, will drive up prices at the pump. Increasing environmental regulations and fuel economy standards, and the drive toward sustainability targets by corporations and governments, are also influencing those capital investments and new vehicle planning. Major automakers, including commercial truck manufacturers, are going to continue to invest in alternative fuel vehicles and advanced vehicle technologies. Along with fuel price trends, automakers are planning for a fast-changing transportation landscape where they’ll be selling less new vehicles and partnering with other stakeholders in carsharing, autonomous vehicles, urban planning, vehicle safety improvements, and reducing traffic congestion gridlock and air pollution.

If you study the Forbes’ list of the world’s biggest public companies, you’ll see that major oil companies are high on the list and that the annual ranking is becoming more expanded and globalized. China, which became the largest importer of oil in 2013, plays a very visible role on this list. No. 1 on the list is ICBC (Industrial & Commercial Bank of China), which funds a lot of petroleum production. Number 10 on that list is PetroChina, which refines crude oil and petroleum products and is engaged in the exploration, development, production, and sale of crude oil and natural gas. PetroChina was also the largest emitter of greenhouse gas emissions in the world during 2013. Advanced vehicle technologies are in the pipeline, but for now, the power of the global oil industry and its impact on emissions can’t be ignored.

As for the near future, and for the long-term, here are a few market forces to follow that likely will be influencing motor fuel prices………..

  • While crude oil has been selling for about $55 lately on the WTI exchange, analyst firm Trefis forecasts those prices will reach about $100 per barrel by 2020. Recent price declines in oil should extend for a longer period of time than Trefis had originally predicted; a slower growth demand scenario and the weakened price controlling power of OPEC will extend these current prices longer, but they will be going up to the $100 per barrel range in about five years. Rapid growth from non-OPEC supplies relative to overall demand has been at the heart of the recent oil price drop.
  • Approval of the Keystone XL pipeline in Washington, DC, appears less likely to happen. Lower gasoline prices and skeptical comments from President Barack Obama may be behind it. While it may be very good for Canadian oil companies, it’s not going to provide much for American consumers, Obama said. That’s the fourth non-supporting comment the president has made publicly since early November on the six-year old proposed pipeline that would run between Alberta and Texas. Several analysts have said that falling gas prices support the argument of Keystone XL pipeline opponents that it’s not worth the investment; Canadian oil isn’t necessary with all the global oversupply that’s already out there.
  • The US may benefit from these price fluctuations in stabilizing hostile relationships with Russia, Iran, and Venezuela – which face financial collapse with oil price drops. Russia’s former finance minister and long-time ally with Russian president Vladimir Putin has called for his country to improve relations with the US as the oil price drop is creating for them a “full-blown economic crisis.” Putin has been at odds with the US and other countries over Western sanctions after Russia intervened in Ukraine. The Venezuelan government had hoped to continue with the free-spending policies enacted by former President Hugo Chavez, but that’s not likely with oil prices dropping. Iran has been losing about $1 billion a month because of the oil price declines. Long-time Pentagon adviser Edward Luttwak says the price drop, “is knocking down America’s principal opponents without us even trying.”

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