Oil prices have staged a recovery since early 2016, but remain at around half the level they were in the middle of 2014.
Given the recent improvement in oil prices, many investors are wondering how far the current rally will go. Are we soon going to see Brent crude climb further, moving up from the current $57 per barrel, past the $60 per barrel and then onwards beyond $70?
Or, is oil destined to stay lower for longer, perhaps remaining in the $50-to-$60 range for some time to come?
Oil´s big drop
The answer to this question lies at least partly in understanding why oil plummeted so quickly from a peak of $115 per barrel in the middle of 2014 to as low as $28 per barrel at the beginning of 2016.
Most big historical slumps in oil prices have been caused by falling demand during times of recession or economic slowdown. This was just such the case during the recent Great Recession, with oil dropping from over $140 per barrel in the middle of 2008 to trade at under $40 per barrel at the beginning of 2009.
But the most recent downturn in oil prices doesn´t fit into this category. The global economy was still in an upswing when oil began to fall in 2014 and the global economic outlook has generally strengthened since then.
The reason for the most recent big pullback in oil prices was in fact due to a glut of supply rather than a major slowdown in demand.
Oil prices began to come under pressure early in 2014 as big OPEC producers ramped up production in a bid to grab market share.
The oversupply was then compounded by falling production costs in the US and the emergence of the latter as an exporter.
US federal law had forbidden the export of domestic crude to all markets with the exception of Canada. This all changed in 2015, when the law was altered to allow US producers to export far and wide.
Data from the US Energy Information Administration (EIA) shows the nation´s exports have risen dramatically this year.
US crude exports for the first half of 2017 hit 784,000 barrels per day (bpd), a near 60% increase on the same period of 2016.
Total US crude production is currently running at around 9.5 million bpd, with the vast majority of output still earmarked for the huge domestic market.
While most of this sounds quite bearish for oil, there have recently been some bullish developments in the market.
First and foremost, OPEC and allies such as Russia have come together to curb supply, with the aim of driving up prices.
One of the group´s problems, of course, is that it can do nothing to stop US producers, which are also now exporters, from raising their own output.
However, OPEC and its allies still reign supreme in the oil market; Saudi Arabia, the leading figure, usually produces somewhere in the region of 10-to-11 million bpd in its own right.