After a Surge Last Year, Oil Prices Seem to Have Stabilized

Although petroleum prices are still fairly low by historical standards, the inflation of last year made quite a few investors nervous. Going from an admittedly depressed low point of somewhere around $20 per barrel, oil surged to over $50 in trading that some thought presaged further turbulence to come. Instead, oil seems to have settled in around this new mark in a fairly stable way, and some have suggested that this stability will continue for quite some time to come. As this post at a well regarded website suggests, for example, there are a number of reasons to think that the price of oil will not climb much higher in the near future.

One of these is simply that demand growth has been tempered to a significant extent by the development of alternative energy sources. While petroleum will remain for many years a crucial source of energy worldwide, other kinds of power are starting to mature such that oil’s traditional lock on the market has come into question. Whether that means relying on technologically dependent green technologies like solar and wind power or building new geothermal plants, steady progress on this front has come to mean that increasing demand for energy does not necessarily or always contribute to heightened pricing for oil.

While OPEC has since restored something of its grip on production totals within the cartel, the discipline that has recently been reimposed has also been of a looser sort than was the norm in the past. The essentially punitive approach that led Saudi Arabia to open the floodgates for production some years back in response to shale oil and natural gas extraction elsewhere has been moderated significantly, but not to the extent that truly stringent control has been restored.

Instead, a realization seems to have set in that only by allowing fairly generous levels of production can Saudi Arabia and others soften the ongoing transition away from oil and sell their remaining reserves at reasonable prices in the process. Fearful of spurring too much additional investment into other kinds of energy with heightened prices, OPEC members seem to be committed to staying away from the triple-digit marks that some had earlier assumed were inevitably going to become normal once again.