History, logic and market forces say oil prices will rise again

OIL'S rapid decline since August of last year has been dramatic. To listen to some commentators you would also think it is unprecedented and irreversible. Those claiming that oil will continue to fall from here and remain low for evermore, however, are flying in the face of both history and common sense. The question we should be asking ourselves is not if oil prices will recover, but when they will.

From June of 2014 until now, the price of a barrel of West Texas Intermediate (WTI) crude oil has fallen some 57 per cent. As Chart 1 shows, there have been drops of a similar percentage five times in the last 30 years. The rate of recovery has been different each time, but recovery has come. In addition, since 1999 the chart shows a consistent pattern of h…