A significant decline in the use of oil for power generation is not material to overall oil demand today or in the future . What Drives Oil Prices?
The No. 1 driver of oil prices is demand . The second is supply .
Supply is OPEC and non-OPEC production worldwide. When production/supply is high in relation to demand, prices tend to be lower. If worldwide production falls and demand is high, prices rise. (It’s basic economics: The more people want something, the more a company can charge for it.) As we discussed in Chapter 2, this is also what feeds cyclicality in the oil market. The longer prices remain low, the less economical it is for producers to keep drilling for oil. Remember… the price they can get per barrrel of oil has to be higher than the cost for drilling it. So production falls. Consumers are incentivized to buy cheap oil, so demand rises and
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