We keep hearing it. Oil prices are rising. Or the most recent article we’ve run across: “Oil Prices Poised to Rise as Cycle Comes to an End,” posted by Oil Price.
As we all know, oil has always been very cyclical. But the down cycle has outlasted the average down cycle, which historically runs no more than two years.
Writer Dan Steffans has worked in the industry for more than 20 years, and he has a few thoughts on what he has seen. As taken directly from his article:
Oil price cycles tend to overshoot on both the upside and the downside. The price of oil never stays at the “Right Price” for very long because a small over-supply can push the price quite low and a small under-supply can cause a big price spike.
Once oil supply & demand get out of balance, there is no quick fix. This is an extremely capital intense business and it takes years to set up funding and mobilize the resources for major upstream projects.
Since the Arab Oil Embargo in 1974 there has not been a prolonged period of stable oil prices and I doubt there ever will be again. We are in the 9th inning of this cycle and we are warming up for the next “boom” period of higher oil prices.
Several big mergers were announced March 2018, which M&A activity typically signifies the end of a down cycle.
The most recent IEA report triggered a change in oil prices and as we’ve been saying, it is relevant to note that demand is strong, andthere are historically low US hydrocarbon inventory levels. So as demand catches up to supply—and slowly starts to surpass it—a disruption could cause a spike in oil prices.