Oil Prices: Where is it heading?

After tracking oil's dramatic swings since 1992, I'm struck by how we're sitting at a relatively subdued price point despite a functioning global economy. With geopolitical tensions simmering and structural changes reshaping the market, here's my take on what's driving crude prices—and where they might head next.

The Volatility Story Continues

Looking at oil prices back to 1992, the chart tells a story of dramatic volatility. The financial crisis crash, the shale oil revolution that damaged OPEC's control of worldwide oil prices, and the COVID-19 collapse during global lockdowns—each episode effected the market considerably.

What strikes me now is that we're currently sitting through a fairly low price point, considering that the global economy is still moving and we're not in recession.

Bullish Pressures Building

The case for upward pricing pressure starts with Middle East political upheaval. The potential closure of the Strait of Hormuz, which supplies nearly 20% of world oil supply, remains a genuine risk. While tensions appeared to calm after recent US actions against Iranian nuclear facilities, I wouldn't be surprised if situations develop where Iran feels compelled to threaten the straits again.

OPEC's discipline continues to support prices, though it's getting harder to maintain. Many member countries struggle to balance their budgets at current levels, creating pressure to keep withholding supply. Meanwhile, US shale oil isn't quite the price destroyer it once was—sector consolidation means producers are more likely to work together rather than race to rock bottom prices.

Headwinds Gaining Strength

The bearish case centres on weakening demand fundamentals. The IEA has slashed its 2025 growth expectations to just 720 kb/d and warns of potential surplus in 2026. Trump's tariff policies haven't fully hit markets yet, but weakening US imports would inevitably affect demand from Asian manufacturing.

There's also significant stockpiling happening across Europe and the US. With oil prices relatively low for months and geopolitical concerns mounting, strategic reserves are building. This cushion could counter sudden price shocks through coordinated releases.

Don't underestimate Trump's influence here. His administration has been vocal about lowering global oil prices to combat inflation and boost consumer spending. Unlike other presidents, he shows strong inclinations to directly impact market prices through whatever pressure he can exert.

My Price Prediction

At these prices, I wouldn't want to be overly predictive of where oil will trade over the coming 12 months. The variables are simply too numerous and volatile. We're at a sustainable price point that's really on the cheap side, but that doesn't guarantee upward movement.

My base case expects modest global economic improvement in coming months, which should provide slight strengthening in oil prices. Nothing dramatic enough to bet the house on, but sufficient to support current market levels.

For oil company valuations, I'm taking a pragmatic approach—assuming their average realized prices over the next 12 months will roughly match the past 12 months.