Why Are Oil Prices Rising and Should Investors Be Worried?

By: Alex Dryden via Iris.xyz.

Brent crude oil prices have risen by 34% in 2019, and U.S. orientated WTI oil price have also rallied significantly, up 39% year-to-date. The main driving factors for higher oil prices in 2019 have been rising geopolitical concerns in places such as the Middle East and Venezuela, causing worry that these political issues will disrupt their production.

While spot prices might have risen, investors shouldn’t lose track of the longer-term fundamentals. The below chart highlights that the U.S. economy has become almost entirely self-sufficient in meeting its own oil needs. At its peak in 2011, 60% of the U.S. total trade deficit was due to petroleum. Last year U.S. oil production rose by 17% to a record high of 10.95 million barrels per day, in turn pushing down net petroleum imports to just 3% of the total trade deficit. With an estimated 39.2 billion barrels of proven crude oil reserves in the U.S., it is likely that the country will soon become entirely self-sufficient and even become a net exporter of oil to the rest of the world.

In conclusion, while geopolitics may be disrupting supply and forcing oil higher, investors shouldn’t bank on prices staying there. As the U.S. becomes entirely self-sufficient and even begins to become a net exporter of oil, it is likely to keep a lid on oil prices in the long-term. Cheaper oil is typically a nice tailwind for global economic growth, helping both consumers and business via lower fuel and input costs.

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