The price of oil is starting to creep up again as “less bad” data from the United States gives investors something to trade on. The future of oil prices and related exchange traded funds (ETFs) is based on the fundamentals of supply and demand, but it is up to the investor to interpret the situation accordingly.
Oil prices crossed $80 per barrel last Friday after better economic data from the U.S. signaled a healthier appetite for oil, reports Alex Kennedy for The Associated Press. Additionally, the Energy Information Administration also said that commercial crude inventories dropped 500,000 barrels last week.
According to Robert Huebscher for Advisor Perspectives, today’s price of oil is the normal price while record high prices experienced in 2008 were the result of very high volatility. Nevertheless, working capital reductions, diminished trade and manufacturing all helped drop demand for oil, which brought prices back down. [Oil and Gas ETFs Feeling the Push-Pull.]
Meanwhile, “demand destruction,” or changes in habit, altered lifestyle, innovations or substitutions, has kept the price of oil suppressed. For the long term, industrialization and urbanization will continue to produce growth in oil demand, but increased efficiency in the future could help reduce the rate of demand increase. Huebscher expects long-term forecast growth rates of oil consumption to drop to around 1.2% per year from the current 1.6%.