Many aspects of financial markets are often down to a matter of opinion and that is certainly the case when you ask investors and analysts for their forecasts on what is going to happen to crude oil prices.

If you take more than a passing interest in prices on oil, you will no doubt be aware that black gold has been on a real rollercoaster ride in recent times, which is why it could pay to try and decode what the future holds for crude oil.

The only certainty is uncertainty

It is fair to say that no one really knows where oil prices are heading, both in the short term and over a longer period of time.

Analysts, traders and economists alike, are all intensely scrutinizing every small movement in price, as well as trying to read between the lines of the footnotes in annual reports, to get some sort of handle, and maybe even a trading edge, on where the market is headed.

What we do know right now, is that having been on the floor in historical pricing terms, crude oil is staging something of a recovery, but the current price per barrel of crude oil, is still nowhere near where it has been in the past.

Compare the price in the summer of 2016 of around $50 a barrel and then remember that the price was about $107 a barrel, 24 months earlier. This gives you a real sense of the volatility and indeed the uncertainty as to where the price is headed over the next few weeks, months and years.

Many traders will testify that the only certainty when it comes to crude oil prices, is that there is likely to be continuing uncertainty.

Traditional role

The general view, which is based on past trends, is that when oil prices are falling, this is often perceived to be a net benefit for the global economy and you can often see a direct correlation between rising stock prices and falling oil prices.

Rather like gold, which is a precious metal that has long been regarded as safe haven in times of economic woe or geopolitical uncertainty, crude oil has often had the effect of influencing equities.

The line of thinking is that cheap oil serves as a form of consumer stimulus, but the problem investors face at the moment, is that although this stimulus effect has not exactly disappeared altogether from the equation, it doesn’t seem that it is quite playing to its traditional role at the moment.

There is some recent evidence to suggest that oil prices and equities have risen in line to a certain extent, so it is still potentially relevant as a way of predicting price movements, but it may not be a strategy that is as reliable as it once was.

Supply and demand issues

What we have seen in recent years, is a slight drop in global demand for crude oil, but because OPEC has been trying to maintain its market share, production levels are still at a higher level than consumption.

This is relevant as major oil producers, such as Saudi Arabia, have publicly stated that their position is to not cut oil production, despite the fact that the current levels of oil production are not in line with demand.

What Saudi Arabia seems to be attempting to do, is to let the market decide where the balance should be in terms of the price per barrel in relation to current production levels.

As production is therefore currently exceeding consumption levels, you have to try and evaluate what these record inventory levels will do to crude oil prices going forward.

Making sense of the data

Some potential pointers to consider when trying to predict where the price of crude oil might be headed, might include data from the World Bank and the IMF, amongst others.

The IMF have suggested that even when you take into account some supply disruptions in Nigeria and Canada, the spot price may end up falling slightly in the near future.

This is based on their June 2016 report and if you back that up with the World Bank report of 2016, this also comes to the conclusion that prices may well fall, albeit slightly.

If you weigh up all of the data and trends, it may well help you to decode the future price of crude oil, allowing you to trade accordingly.

Alisha Duncan first became interested in stocks and shares several years ago after the birth of her son and the sudden reality of being a stay at home Mom. Numbers have always come easily to her and with an analysis background she took to it like a duck to water! Now helping others enter the world of stocks and shares, Alisha writes for a selection of finance and trading blogs.