Oil and natural gas price index

Categories : Category Insights | Commodity Trends Published on : Jul 27 2017

Crude oil and natural gas prices often move in line with each other. Oil and gas prices have experienced high volatility over the past five years, due to unstable supply levels, fluctuating infrastructure investments and short-term demand shocks. During the past decade, oil and gas prices experienced rapid growth due to surging demand from China, India and other emerging economies. Political instability in many leading petroleum-producing countries also contributed to rising prices. In fact, until the middle of 2008, energy prices were skyrocketing, driven by the booming domestic economy, particularly the construction sector.

However, the financial crisis and subsequent recession of 2008 caused a sharp decline in domestic energy prices. In 2009, oil prices fell to $61.78 per barrel, while natural gas prices declined to $3.67 per thousand cubic feet. At the same time, while demand fell across all sectors of the economy, energy production experienced steady growth in the United States. Hydraulic fracturing, directional drilling and other advanced extraction techniques fueled a shale energy boom, causing domestic oil and gas production to strongly increase. Gas production increased particularly strongly, which kept domestic gas prices low in recent years.

As the economy stabilized, oil consumption quickly picked up, causing oil prices to rise 28.9% and 30.6% in 2010 and 2011, respectively. Unrest and upheaval in the Middle East and North Africa contributed to a temporary supply shortage in 2011, which resulted in a spike in prices. Since then, domestic energy prices have been constrained by mounting production levels. Limited investment in pipelines and export infrastructure have also contributed to a supply glut domestically, keeping prices anchored in 2012 and 2013. In 2013 and 2014, a slowdown of the Chinese economy has further limited global demand for energy, contributing to low prices. Due to supply outpacing demand, the oil and natural gas price index is anticipated to decline at an annualized rate of 12.4% over the five years to 2017. The index is expected to rise by over 24.0% as oil and gas prices begin to stablize after precipitous declines in the two years prior.



Forecast

The world price of crude oil and US price of natural gas are projected to increase over the five years to 2022. Although strong production is anticipated to keep supply high and inhibit significant price appreciation, global energy demand will be driven upward over the five-year period as the wealth of businesses and consumers in developing nations grows rapidly. Natural gas will increasingly meet this demand, as opposed to other energy sources, due to its reputation of cleanliness. Crude oil demand will also increase, particularly as emerging economies develop a middle class. Rising global demand, especially as Europe recovers from recession, will push prices upward. Domestic prices will also increase as pipelines and other export infrastructure come on line, which will allow domestic energy extractors to more easily ship products to the international market. The oil and natural gas price index is anticipated to increase at an annualized rate of 2.5% over the five-year period.


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