Prices of oil in the future
In today's world, we see a sudden, steep rise in prices of goods and commodities. The prices of petrol and petroleum products have especially climbed up far more than expected. This has naturally created a feeling in the minds of the people of the world that prices of oil in the future will soar beyond control.
Every newspaper clipping claims that the price of gasoline and other related product will jump to more than double its current price in the next year. This is not insensible, considering that they have indeed gone up steeply since the last couple of years. But it would also not be completely right to think that this estimate would work, as the futures market does not show a trend towards this thing happening.
Just like any other commodity, the prices of oil in the future will also be based on a contract basis. The prices will be set for a time in the future. It is important to note that the crude oil is not merely bought because people are interested to store barrels of oil, but because they are actually interested in speculating.
Because there never is a direct trade of oil, but only deals pertaining to the future, the price of crude oil in the future can only serve as an indirect guide to the actual prices of oil in the future. Of course, the oil prices are bound to rise in the future, but this may not be as steep as estimated, for the above-mentioned reason.
There are a few basic reasons why the prices of oil in the future can never be as predicted:
• The time factor
A futures contract is in relation to the trade being carried out several months, even years, from the present day. This is way in the future, so the prices of oil in the future tend to reflect this trend.
• High entry costs
High entry costs of signing a contract may prevent more investors and contractors putting their money on such futures contracts. This will artificially alter the market, making the futures price seem low.
• Estimating future prices in advance
There might be a rise in prices of oil in the future if the contractor thinks that there will be a tendency for the price to increase in the future. Conversely, if he should think that the oil prices would actually come down over the future 5-6 years of the contract, he would also try to reduce the price mentioned in the contract.
• No clarity about the future
Realistically speaking, it is not possible to estimate the prices of oil far, far into the future. There are various other factors like market conditions, new buyers and sellers in the market and new contracts being signed up every day. These factors make it very unclear as to what prices of oil in the future will really be like.
Trade pundits usually give a negative picture of prices of oil in the future. But maybe it might not climb up so steeply after all – maybe there's still hope for us all. All that we can do is wait and watch to see way the future turns!
Every newspaper clipping claims that the price of gasoline and other related product will jump to more than double its current price in the next year. This is not insensible, considering that they have indeed gone up steeply since the last couple of years. But it would also not be completely right to think that this estimate would work, as the futures market does not show a trend towards this thing happening.
Just like any other commodity, the prices of oil in the future will also be based on a contract basis. The prices will be set for a time in the future. It is important to note that the crude oil is not merely bought because people are interested to store barrels of oil, but because they are actually interested in speculating.
Because there never is a direct trade of oil, but only deals pertaining to the future, the price of crude oil in the future can only serve as an indirect guide to the actual prices of oil in the future. Of course, the oil prices are bound to rise in the future, but this may not be as steep as estimated, for the above-mentioned reason.
There are a few basic reasons why the prices of oil in the future can never be as predicted:
• The time factor
A futures contract is in relation to the trade being carried out several months, even years, from the present day. This is way in the future, so the prices of oil in the future tend to reflect this trend.
• High entry costs
High entry costs of signing a contract may prevent more investors and contractors putting their money on such futures contracts. This will artificially alter the market, making the futures price seem low.
• Estimating future prices in advance
There might be a rise in prices of oil in the future if the contractor thinks that there will be a tendency for the price to increase in the future. Conversely, if he should think that the oil prices would actually come down over the future 5-6 years of the contract, he would also try to reduce the price mentioned in the contract.
• No clarity about the future
Realistically speaking, it is not possible to estimate the prices of oil far, far into the future. There are various other factors like market conditions, new buyers and sellers in the market and new contracts being signed up every day. These factors make it very unclear as to what prices of oil in the future will really be like.
Trade pundits usually give a negative picture of prices of oil in the future. But maybe it might not climb up so steeply after all – maybe there's still hope for us all. All that we can do is wait and watch to see way the future turns!
