Oil and Gas (North Sea)

A look into the reasons behind the price increase and what experts are predicting for the future. How Will Inflated Oil Prices Affect the UK in 2019? These days, it’s difficult to go a week without noticing the increase of oil prices – all it takes is a quick trip to the petrol station to really feel the pinch. Yet beyond our slimmer wallets, the long-term repercussions that these inflated oil prices will have on the UK economy are a bit unclear. Although the gas industry is a notoriously difficult industry to forecast, we took a look into the reasons behind the price increase and what experts are predicting for the future. What Caused the Price of Oil to Increase? The relatively recent rise in oil prices can be attributed to two key variables; the unanticipated strength of major global economies and rising geopolitical instability. Over the past year, many global economies have performed better than expected and have subsequently put an increased demand on oil production. Although in theory this sounds positive, the basic economic theory of supply and demand proves otherwise. You see, when supply remains the same but demand increases, the price of a commodity goes up. So, as global economies get stronger and demand more oil, the price unfortunately rises with it. The second variable has been geopolitical instability in the United States, the Middle East, and South America. The recent decision made by the President of the United States to exit its nuclear deal with Iran and impose sanctions on Iranian oil exports will undoubtedly affect the market. Since Iran produces oil at one of the lowest price points on the market, the sanctions will inflate their prices and take away their competitive advantage. This means that other nations who are pricing their oil at a level that competes with Iran will no longer have to do so and will likely increase their oil prices, which will push the entire market upward. In addition, less Iranian oil on the market will decrease supply, which will further inflate prices before other countries can increase production and pick up the slack. Geopolitical instability in the Middle East and South America have also played an influential role in the rise of oil prices. Although tensions are currently at a standstill, any major shift could also be volatile to the market as it struggles to maintain an equilibrium. What Does This Mean for 2019? Many industry experts predict that in the short term, oil prices will continue to rise as the US-placed sanctions on Iranian oil exports come into effect over the next month. However, some analysts predict that if prices continue to creep back to levels seen in September 2014 ($100/barrel), oil demand will be “annihilated”, and economic growth will be halted. The UK is in a particularly vulnerable position as there is growing concern that record high prices at the pump may coincide with the pound continuing to fall against the US dollar. Fortunately, if prices continue to head in that direction, developing countries will likely see more electric cars enter the market. Currently, the UK has 114 models of electric cars on the market and this number is expected to increase into 2019, with over 40 new models entering the market. Although this is good news for the environment, not all UK consumers will be in a position to buy a new vehicle, which will put many UK citizens in a precarious situation. At this point, it’s difficult to predict exactly what will happen as there are countless variables at play. However, it is clear that increasing oil prices have been and will continue to negatively affect the average UK citizen, so we can only hope the market corrects itself in the near future.

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