Oil and its petroleum byproducts are a driving force in the global economy. It has been one of the most essential resources in the world for over a century and has brought several Middle Eastern governments unimaginable wealth. There is an arguably unlimited oil supply underground — somewhere north of 1.6 trillion barrels — but prices and production are volatile for such a stable commodity.  Geopolitics is the likely culprit behind wide fluctuations in the oil market, followed by innovative technologies. Let’s explore how oil prices and production trends have evolved over time and what the future holds.

A Historical Perspective

Oil and the US dependence on it influenced US foreign policy as early as 1850. The discovery of oil in the Middle East dates to 1908 in Persia (Iran). OPEC, the consortium of Arab countries that controls production), also controlled prices by increasing or lowering production until other countries (Venezuela, Russia) came online and brought competition into the mix. Oddly enough, crude prices remained relatively stable during the Gulf War. The US industry introduced fracking —extracting oil and gas from shale — in 2014, leading to decreased demand and another price drop. Global demand also sharply declined during the 2020 pandemic.

Current Oil Prices and Production Trends

Prices have recovered with the rest of the global economy, bringing them back to levels that keep them out of the news. Fracking in the US helps prices stay low, and OPEC bases its production levels on how much oil and gas the US is producing. The only real unknown on the horizon today is the Ukrainian conflict with Russia, but another geopolitical fracas can happen anytime and affect oil prices and production trends once more.

What Happens Next?

Oil faces an uncertain future as it faces numerous headwinds. Renewable energy has moved past a green trend into a market force, with solar, wind, and battery power leading the charge. Geopolitical instability is another risk factor — China, India, and Turkey are buying Russian oil today, increasing prices in the West as they have lost access to Russian exports.

Improving Technology

New technologies are producing cleaner oil than ever, and production is up as oil companies implement them. New technologies are leading to cleaner oil production, and companies are adopting them rapidly. For example, Exxon is using aerial, satellite, and ground-sensor networks to reduce emissions, showcasing how technological advancements are reshaping oil prices and production trends.

Price Predictions

Brent crude prices are forecast to drop to $80 per barrel in the last quarter due to increased production, followed by the news of a .50 rate cut by the Federal Reserve. Oil production is expected to rise in Q4 2024 and throughout 2025, resulting in lower prices per barrel.

Investment in Oil

Is oil still a good investment? Probably yes. Even though China’s demand is lower and the US economy also appears to be slowing down, prices have not moved up much in recent months. However, economists expect OPEC to continue withdrawing from global oil inventories, which will bump demand back up. Over the long term, oil companies will adapt to the changing technologies and renewables that keep them in blue-chip territory.

The Evolution of Oil

Oil remains a valuable resource for the global economy and will remain so for the foreseeable future. However, research and development capital is moving towards cleaner energy sources, although much of that research is driven by the large oil companies, which are adapting to renewables as well as traditional oil and petroleum products.

While green energy is probably the future as a fuel source, petrochemicals remain the go-to materials for thousands of manufactured products. Until biodegradable plastics are developed into a viable alternative, expect oil to stay a solid investment.

Prices and Production Trends: The Road Ahead for Oil and Gas

As the energy landscape continues to evolve, the future of oil and gas remains dynamic. While renewable energy sources gain traction, oil’s versatility and its role in petrochemical production ensure it will remain relevant in the global economy. However, ongoing geopolitical tensions, technological advancements, and environmental considerations will shape the industry’s trajectory. Investors and stakeholders will need to stay agile, keeping an eye on shifts in demand, production innovations, and global policies to adapt successfully to the changing market conditions. Staying informed of new technologies and industry changes is critical in navigating the uncharted waters of oil and gas.  

The foregoing information has been obtained from sources considered to be reliable, but we do not guarantee that it is accurate or complete, it is not a statement of all available data necessary for making an investment decision, and it does not constitute a recommendation. Investing in oil involves special risks, including the potential adverse effects of state and federal regulation and may not be suitable for all investors. Investing involves risk and you may incur a profit or loss regardless of strategy selected, including diversification and asset allocation. Prior to making an investment decision, please consult with your financial advisor about your individual situation. Any opinions are those of Dale Crossley and Evan Shear and not necessarily those of Raymond James.