Supermarkets are usually quick off the mark when it comes to telling us they are cutting the price of petrol.
But in recent months the noise from the forecourts has been somewhat lacking. This is because oil prices have been steadily rising and on Monday the price of a barrel of the black stuff hit a six-month high at nearly $50 a barrel.
Why is it so high?
The main reason was a report from investment bank Goldman Sachs on Monday, which declared that the recent oversupply had come to an end and we are now, for the first time in two years, all using more oil than the amount being drilled.
The report said: “The oil market has gone from nearing storage saturation to being in deficit much earlier than we expected.”
Before this oil prices had hit record lows – falling to as little as $30 a barrel. The biggest issue has been the almighty fight between the US and Saudi Arabia.
The Saudis are concerned that they are losing their grip on the world’s oil market because the US has been focusing heavily on the production of shale gas in its own country.
Americans are trying to rely less on foreign oil and want to become more self-sufficient.
The problem is, producing shale gas is more expensive than traditional crude oil and the Saudis know it.
In recent months Saudis increased supply – flooding the market with more oil than is needed – and this has pushed the price of oil down.
It has also led to many shale gas companies in the US either slowing or stopping production completely because it is not economically viable to pump any more oil or gas out the ground.
So, what has now changed?
It is a combination of some countries wanting more and more oil, and also heavy cuts by some oil-producing countries in the amount they produce.
According to analysts at Barclays Bank, China has seen a big boost in consumer demand for oil – and diesel in particular.
Kevin Norrish, an oil analyst at Barclays, said: “The most significant upward revisions to demand have been made in China, where the effect of the government stimulus package has improved what was a very weak picture for diesel demand.
“Meanwhile, Chinese gasoline demand has continued to expand fast, supported by further big increases in car sales and, more importantly, the strongest expansion of the China car parc [how many cars the Chinese own] that has ever been.”
India is also stealing a march on other developing countries, with the amount of oil it is demanding rising in recent months, and the International Energy Agency reckons the country could soon match China for demand.
In terms of production, though, the amount of oil available has been hit – especially in Canada and Nigeria.
Huge wildfires in Canada brought production to a halt, with more than 1 million barrels of oil a day staying in the ground there.
But Nigeria is suffering the most, with attacks on the country’s oil infrastructure hitting new highs.
The amount being drilled is now at a 22-year low – 1.6 million barrels a day, down from 1.9 million at the start of the year.
The Niger Delta Avengers have been attacking pipelines – particularly those controlled by foreign companies – following the actions of the Movement for the Emancipation of the Niger Delta, which attacked pipelines, refineries, wells, and platforms both on- and off-shore.
No one knows why the Avengers are attacking the lines, but previous militants have claimed the disruption has been to raise awareness of environmental issues and to fight for locals living in the under-developed region to get a cut of the wealth.
Will the price of petrol go even higher?
It seems unlikely – while the supply/demand is balancing out, there are still factors that mean production will remain relatively steady.
The Saudis want to continue pumping out oil in the hope of maintaining their market dominance, and they have deep pockets.
Even though other oil nations in the Organization of the Petroleum Exporting Countries [OPEC] – which is headed by Saudi Arabia – want a freeze on production, the Saudis have rejected this.
However, some analysts have questioned whether the secretive state has as much money as it claims to have.
Most are in agreement that the Saudis will not increase supply, in the hope of pushing the price even lower. But with an economy dependent on oil, it will be interesting to see how long the rulers can live without the same vast levels of wealth the oil previously generated.
Iran has also got its place back at the international oil table, following the lifting of sanctions in the country after the US signed a deal with the country on its nuclear ambitions.
Barclays pointed out that production in Iran is now 1.9 million barrels a day – just 300,000 barrels short of its pre-sanction levels in 2011 – which could keep the price slightly lower.
At the moment, the oil sector appears reasonably well balanced to avoid sky-high spikes or rock-bottom lows in prices and Goldman Sachs also predicted that although demand will outstrip supply for the rest of this year, by 2017 it will reverse again.
But with global uncertainty seemingly around every corner, nothing should be taken for granted and do not be surprised if the forecasts are once again redrawn.
Simon Neville is business editor at BuzzFeed UK and is based in London.
Contact Simon Neville at firstname.lastname@example.org.
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