Have Oil Prices Finally Hit Rock Bottom?

Retail gasoline prices are up slightly. Does that mean the worst of the oil bust is finally behind us?

By Alain StephensMarch 15, 2016 11:01 am|

If you’re traveling for spring break – or perhaps just commuting to work – you’ve probably noticed that gas prices have jumped back up in the last couple of weeks. It’s just one small indicator that the oil market could be rebounding.

In fact, the international energy agency has declared that oil prices have officially bottomed out. West Texas Intermediate Crude is hovering around $37 a barrel, a gain from lows dipping below $30 a barrel earlier this year.

So does all of this mean the oil market is on the road recovery? Matt Smith, an energy analyst from ClipperData and contributing writer to the Houston Chronicle’s Fuel Fix blog, says that while it’s too early to say whether oil prices have “bottomed out,” there are signs that the market could be back on the upswing. He says that this is because of two things: talks of a potential production freeze from key players like Russia and Saudi Arabia, and investments from hedge funds.

“(These countries are) talking about a potential production freeze … that spurred on some buying in the market on the expectation that this global glut could start to see some rebalancing,” he says. “(Hedge funds) have been selling the market short, so they’ve been making money as oil prices have been going down. That’s been really attributable for why prices have ran up so much.”

And even though oil and gas prices have spiked over the past week or so, it’ll take some time before the market gets back to where it once was.

“Its really going to be gradual process in terms of recovery here as we await production losses – not just from the U.S., but from Russia, Norway, the North Sea as well – to really bring this market back into balance,” he says. “Once we see that, perhaps at the end of this year, perhaps into next year, we will see oil prices rise.”

In the meantime, expect prices at the pump to go up, Smith says. But they will likely stay somewhat low throughout the end of the year.

“We should see oil prices remain relatively low for this year, and in fact the department of energy predicts that the retail gasoline price will average $1.89 for this year, which is remarkable, considering the average $3.50 back in 2011, 2012, 2013.”

Listen to the full interview in the audio player above.