Will the Oil Market Continue to Dominate the Global Economy?

Will the Oil Market Continue to Dominate the Global Economy?

Back in the spring of 2020, the global oil market sunk to the point of collapse, as the coronavirus-inspired lockdowns began to take hold and demand s

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Back in the spring of 2020, the global oil market sunk to the point of collapse, as the coronavirus-inspired lockdowns began to take hold and demand shuddered to a halt across the world.

At the market’s lowest ebb, West Texas Intermediate (WTI) crude oil traded at negative prices on April 20th, creating an unwanted first since trading began in 1983. The following day, Brent crude oil prices fell below $9.12 per barrel, its lowest daily price in decades.

Despite this, the oil market has since rebounded, while it remains a dominant driving force in the global economy. But is this trend likely to continue going forward?

Why Have Oil Prices Increased Since the Spring of 2020?

In the two years since the outbreak of the coronavirus across Europe and the rest of the world, oil prices have fortunately experienced a significant boom.

In fact, they’ve since peaked at just under $100 per barrel, thanks largely to a strong global recovery in the wake of Covid lockdown measures being eased and the impact of Russia’s invasion of Ukraine on the delicate balance between supply and demand.

In terms of the former, we should note that oil accounts for approximately 3% of the world’s total GDP, making it one of the most influential commodities in the world. What’s more, petroleum products can be found in a surprisingly diverse range of products, including PPE, chemicals, fertilisers and even aspirin.

Because of this, there’s a strong correlation between global economic performance and demand for oil, which in turn has a direct impact on its price and real-time market value.

In terms of supply and demand, the conflict in Ukraine has raised significant concerns about the global supply oil into regions such as Europe. These fears have obviously helped to drive higher prices in the near-term, as suppliers can charge a premium while buyers compete for dwindling sources of oil.

What About the Future – Will Oil Markets Remain a Dominant Market Force?

Of course, the balance between supply and demand has underpinned oil’s volatility over the course of the last decade, with OPEC constantly negotiating supply caps to help regulate prices and market valuations.

Although this has been good news for those engaged in CFD trading, it’s also indicative of an uncertain economic climate and one that continues to endure marked peaks and troughs.

Throughout all of this, however, oil has remained a durable and seminal commodity, and one that continues to supply approximately 33% of all energy globally. Not only is this the world’s primary fuel source, but it has also continued to see incrementally higher demands with every passing decade.

This trend is unlikely to change in the near-term either, even as much of the developed world commits to more renewable energy sources.

After all, energy sources like solar and wind continue to rely on oil as a much-needed reserve while the 83% of the world that remains underdeveloped will continue to rely heavily on oil as it evolves.

This will ensure that the long-term demand for oil remains high, while safeguarding the commodity’s future as a key driver (and indicator) of economic growth.