This week we finally saw an expected situation on the markets: prices of oil started to recover, and it seems that growth is steady and promising (for investors, of course). The exact trigger event is still unknown, but many address it to old news of Fed postponing the interest rate rise. Despite it happened several weeks ago, no better rationale can be found to justify oil option price hikes. China’s economic turmoil is continuing. Some experts reckon that the true reason lies in sheer optimism: the global oil rig can’t rise forever and consumption must keep on recovering one day.


However, there are basically no reasons to keep oil prices rising. The dollar exchange rate to other major world currencies did not plummet, as many feared before. Reserves fell a bit, but it is nowhere close to some long lasting trend. Besides that, future consumption may be on the rise in a short, quarterly term because of at least three major reasons:

  • Automobile market blossoms: It does not just happen in the US, almost the entire world experiences growth in demand for new motor vehicles compared to the same period of last year. This shows a clear consumer readiness to spend. More cars also mean more driving and thus more oil consumption.
  • Some major oil exporter countries will even try to lower the output of crude oil, since they tried the “other way” and it didn’t benefit their economies.
  • Heating oil consumption is rising and will peak after Christmas.

There are, however still very strong occurrences which will certainly not allow the price to keep rising and reach some really high levels. Those include:

  • Grim outlook for the world economy, according to International Monetary Fund’s forecasts. One of main reasons for that is low oil price. Cheap oil diminishes consumption in oil export countries, which transfers the economic downturn to countries which export other things to those exporting oil, further lowering oil consumption and its price: a vicious circle of deflation as it seems.
  • European economy is still very weak due to still unsolved debt of Greece and low, actually nonexistent inflation. People and governments may not the eager to increase their consumption of all goods, and aforementioned rush for new cars may just be a shortlasting factor.
  • Chinese economy is experiencing major difficulties, for the first time in last 30 years.
  • Technological advancement is not slowed down. Interest for electric and hybrid powered vehicles was not compromised by cheap oil. People now more worry about other things than just oil price.

As of October 9th the oil price is on a mild rise, but it’s still very slow and against most investor’s optimistic expectations. The oil price is expected to remain around $50/bbl in the following weeks.