Oil has been bouncing around like a jackrabbit in a trampoline factory over the past few years –reaching prices of $115 a barrel in 2014, then dropping to just $26 a barrel in February of this year.
The low prices this year have had many factors, but the biggest factor was a glut in oil. The U.S. recently doubled its oil production, largely due to fracking, which is a technique that allows oil producers to get oil from nearly-impossible places to reach under the soil. Russia has also been producing far more oil than they have before.
This lead to a much larger supply of oil than needed, forcing large oil producers like Saudi Arabia, Algeria, and Nigeria to drop their prices because they had too much supply and not enough demand –no one was going to pay $115 a barrel anymore.
Good News for Oil
But good news is on the horizon for oil investors. Oil has recently climbed to a sixth-month high in price. Oil was priced about $45 a barrel in April, but now we’re seeing a rise to over $47 a barrel.
Oil has jumped for a number of reasons including terrorist attacks on Nigeria’s oil pipelines, cutting their oil output by 30%. Since Nigeria is Africa’s largest producer of oil, and the sixth largest oil producing country in the world, this has an impact.
With the supply of oil going down, demand is shooting up, especially in India and other emerging countries who are driving more.
This supply/demand seachange leads to an increase in the price of oil. The good news for investors is that many small oil companies are priced for oil in the $30s. If oil goes to $65 or $80 by the second half of 2016, these stocks could easily go up 100% or more.
To read more about the rise in oil prices, read the Bloomberg article.