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Factors That Will Affect the Price of Oil in 2018

Oil & Gas	4750 VIEWS
Oil & Gas
4750 VIEWS

Thursday, January 18, 2018 /10:15AM / FDC

Brent oil prices gained 20.5% in 2017, rising to $66.87per barrel (pb) as of December 29th 2017 from $55.47pb on January 3rd 2017. Brent touched $70pb on January 15th. This is 30.3% higher than 2017s average of $53.71pb, and 55.5% higher than Nigeria’s 2017 budget benchmark price of $45pb.

Is this price sustainable throughout 2018? Will oil prices continue to trend higher? These are the questions everyone is asking, and for a country as dependent on oil revenues as Nigeria, the answers are of the utmost importance.

Just like any other commodity or good, the price of oil is determined by current and expected levels of supply and demand. Thus, to understand factors that will influence future oil prices, we must examine the factors that affect the supply and demand of the oil market.

Factors that affect demand

Global economic conditions

On the demand-side, the economic conditions of big countries can sway the market, and affect the quantity demanded. China, for example, is the world’s second largest economy and biggest consumer of oil. The rapid industrialization in the last decade led to an increased growth in the country’s demand.

However, the more recent switch to services and the reduction in manufacturing has capped and even reduced the country’s consumption of oil. Additionally, the Chinese slowdown of 2016 prompted market fear, leading to a massive global investor-sell off. These conditions contributed to the sharp dip in oil prices to less than $30pb in 2016.

Macroeconomic conditions in most world regions are expected to improve in 2018, pushing up global gross domestic product (GDP). India is projected to grow by 7.4% (from 6.7% in 2017), driven by strengthening domestic demand, while continued fiscal support in China will drive a growth of 6.5%.

GDP growth rate for Sub-Saharan Africa (SSA) is expected to inch higher to 3.5% in 2018 from 2.6% in 2017, supported by the rebound in commodity prices. All in all, global growth is expected to inch higher to 3.6% from 3.5% in 20171. Economic growth and the subsequent rise in demand are favorable for oil prices.