- Long-term, shrinking extraction costs will have the biggest impact on oil prices
- In the short term, producers are likely to run down their inventories
- Thereafter, American producers may restrain production to push up prices
- President Trump could convince the Saudis and Russians to do the same
Oil prices behaved according to the rule book for most of 2018. As fears about an all-out global trade war receded, expectations grew that oil demand would rise. Hence, oil prices increased by almost 30 percent, from about $58 per barrel in January 2018 to about $75 in early October. During the next three months, however, oil prices collapsed to about $45 (40 percent), though they have since recovered somewhat, to about $53. What happened? And what will happen next?
To be fair, some alarm bells were already ringing almost a year ago. Last spring, oil prices crossed the $60 threshold and several observers promptly pointed out that something was amiss.