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The oil market is a complex place. And it becomes even more complex when trying to predict the effects that oil production and prices have on other marketplaces – like energy. This is why investors who are particularly knowledgeable about the oil market can make a fortune by predicting the various outcomes of a price shift. Businesses also stand to make tidy profits if they are brazen enough to gamble on the price of oil, gas and energy. If a business buys any of these necessary and interrelated commodities at the lowest possible price then they will likely enjoy a strong competitive advantage over their competitors. It is in the interests of investors and businesses to predict when this current price slump will bottom out.

Energy prices today

Brent crude prices fell to below $50 per barrel this month for the first time since 2009. This came after the Organisation of Petroleum Exporting Countries (OPEC) resisted calls to cut output, and the United States also ramped up production. The most obvious positive effects of a price slump are that importers and large consumers of oil enjoy better purchasing power. Predictably, the extremely fluid petroleum market dived - reducing the price the customers paid on the forecourt. Meanwhile, energy suppliers, particularly the so-called ‘big six’ have been slower to react to the shift. The six largest energy suppliers have reduced their prices by 1-5%, but the changes are slow in coming. Some experts are predicting that prices could fall still further, with the president of Goldman Sachs reporting that they could reach as low as $30 a barrel. However, customers should not expect the prices they pay for commodities to drop quite that far.

The rocket and the feather

One analogy often applied to the oil market is that of the rocket and feather. Prices drop very slowly, much like a feather floating to the floor – but when they start to rise, they rocket. This is the usual story from when prices have fallen previously. Prices fall gradually, and savings are passed onto consumer at an even more glacial pace. Inevitably, after a (relatively brief) period of low prices some outside factor will cause the market to panic and suddenly, prices shoot up. For this reason it pays to manage any risks taken, particularly when buying fixed term energy contracts. For now, businesses can enjoy lower prices, but should remain wary. Gambling on the energy market can be highly lucrative – but if an individual or a business is caught on the wrong side of a price hike they might find themselves stranded in a market of “luckier” competitors.