What Drives Oil Over The Long-Term?

The sharp decline in the price of oil starting in mid-2014, from a level of more than US$100 per barrel to around US$50 today, has cut into the profitability of both big and small oil & gas companies in Singapore’s stock market such as Sembcorp Marine Ltd (SGX: S51) and Ezion (SGX: 5ME).

But the way I see it, there is a very basic economic support for future growth in the price of oil: Demand and supply. The International Energy Agency’s (IEA) recent Oil Market Report had projected an increase in global demand for oil whereas supply is expected to remain more or less flat.

It’s hard to spot the signal amidst the noise when it comes to the price of oil. But the key is really supply and demand. In a new blow to oil supply, Scotland had voted for a ban on fracking this month. While supply is constrained, the global economy continues to grow steadily despite concerns over slowing growth in China and the US’s slow economic growth.

It’s hard to forecast what the price of oil will do, but investors may be well served by keeping an eye on the demand and supply picture.

For more investing insights and updates on what's happening in the world of finance, you can sign up here for a FREE subscription to The Motley Fool's weekly investing newsletter, Take Stock SingaporeIt will teach you how you can grow your wealth in the years ahead.

Also, like us on Facebook to follow our latest hot articles. The Motley Fool's purpose is to help the world invest, better.

The information provided is for general information purposes only and is not intended to be personalised investment or financial advice. Motley Fool Singapore contributor Ong Kai Kiat does not own shares in any companies mentioned.