Prediction time, and most people seem captivated by the idea that AI will in the next 12 months consign us to the dole queue, start a nuclear war, or, in the eyes of the optimists, turbocharge the world economy.<\/p>\n
Any of those might turn out to be true, but in the short term an economic boost is more likely to come via an old-fashioned route with more predictable consequences. Oil prices are headed lower this year, pushing down inflation and giving central banks a nudge in the direction of more interest rate cuts. This might explain the curious bravado exhibited by Rachel Reeves<\/a> when she appeared on Times Radio<\/a> the day after the budget<\/a> in November. Pressed on the Office for Budget Responsibility\u2019s gloomy forecasts for growth over the next two years, she repeatedly said she was confident she would beat their numbers.<\/p>\n Falling oil prices might help; not the boost they would have been a few decades ago, when the economy was more geared to oil, but certainly a gentle shove in the right direction.<\/p>\n Predicting oil prices, of course, is a mug\u2019s game, particularly if you are trying to look more than a few months ahead. There are too many variables, many of them political, which can make a monkey of the best-informed analyst. Having given that caveat, there is a wealth of evidence pointing towards lower prices.<\/p>\n They have already fallen quite far. A year ago Brent crude was heading past $80 a barrel and reached its high for 2025, a smidgin under $84, in the second week of January. It trailed gradually lower all year, dipping below $60 in May before jumping in June before the US attack on Iran\u2019s nuclear sites. By the end of the year it was hovering around $60.<\/p>\n Several factors have pushed it down. Projects that were delayed by the pandemic came onstream, notably Exxon\u2019s Yellowtail offshore development in Guyana and a string of fields in the Gulf of Mexico. That was less important than the behaviour of the big oil-producing nations. Having cut production to support prices in the wake of Covid, last year they lost their discipline, pumping more to push up revenues. Opec+, the alliance that includes the 12 Opec countries plus ten other oil exporting nations, agreed to increase production in April and again in September. Last month, after spats about which members were keeping to their quotas, they agreed a new way to determine individual states\u2019 production capacities \u2014 something that sounds trivial, but which oil experts think will lead to a wave of investment in new fields.<\/p>\n The end result is a lot of oil sitting waiting for a buyer, either on land or bobbing about in tankers. The International Energy Agency\u2019s December oil market report<\/a> said that by the end of October the amount of stored oil had reached eight billion barrels, the highest in four years, a stock that was then growing by 1.4 million barrels a day. The IEA noted, however, that even though there was a glut of oil, petrol and diesel prices had not fallen as fast as expected, something of which you are reminded when you fill up your car. A lack of refining capacity had created a \u201cparallel market\u201d where the price of oil was moving independently from the price of the products derived from it. The IEA said the situation could ease this year as refineries that were shut for maintenance came back online.<\/p>\n As a side note, this glut has built up even as demand for oil has grown \u2014 by 830,000 barrels a day last year, the IEA said, with a forecast for a slightly greater increase this year.<\/p>\n Donald Trump<\/a> is at the centre of two Rumsfeldian \u201cknown unknowns\u201d that could push prices down even further. He is aiming to unseat Nicol\u00e1s Maduro<\/a>, the ruler of Venezuela<\/a>, the sleeping giant of the oil game. It has the world\u2019s largest oil reserves: Opec\u2019s annual statistical bulletin estimates 303 billion barrels, ahead of Saudi Arabia<\/a> at 267 billion. Yet production has collapsed in the past three decades, from about three million barrels a day to below one million.<\/p>\n The second known unknown is Trump\u2019s attempts to broker peace between Ukraine<\/a> and Russia<\/a>. It is hard to know what form a deal would take and whether it would allow the full return of Russian oil and gas to western markets. The European Union<\/a>, in particular, might be reluctant to ease sanctions even if an agreement were cobbled together.<\/p>\n There is one other geopolitical unknown involving Trump, although less directly. Iran<\/a> is in the grip of another round of violent anti-government protests. Again it is hard to predict the outcome, but it is worth remembering that Iran is third on that list of oil reserves. A sanctions-free regime would be a powerful new supplier to world markets.<\/p>\n