Best of the Week
Most Popular
1. Next Financial Crisis Is Already Here! John Lewis 99% Profits CRASH - Retail Sector Collapse - Nadeem_Walayat
2.Why Is Apple Giving This Tiny Stock A $900 Million Opportunity? - James Burgess
3.Gold Price Trend Analysis - - Nadeem_Walayatt
4.The Beginning of the End of the Dollar - Richard_Mills
5.Stock Market Trend Forecast Update - - Nadeem_Walayat
6.Hindenburg Omen & Consumer Confidence: More Signs of Stock Market Trouble in 2019 - Troy_Bombardia
7.Precious Metals Sector: It’s 2013 All Over Again - P_Radomski_CFA
8.Central Banks Have Gone Rogue, Putting Us All at Risk - Ellen_Brown
9.Gold Stocks Forced Capitulation - Zeal_LLC
10.The Post Bubble Market Contraction Thesis Receives Validation - Plunger
Last 7 days
SPX/Gold, 30yr Yields & Yield Curve – Amigos 1, 2 & 3 Updated - 21st Oct 18
Gold Stocks Sentiment Shifting - 21st Oct 18
Why Is the Weakness In GBP/USD Likely? - 21st Oct 18
Stock Market Bubbles, Balloons, Needles and Pins - 21st Oct 18
The Incredibly Bullish Set-Up for Gold - 20th Oct 18
Here Comes the Stock Market Retest - 20th Oct 18
Waterproof Camera - Olympus Tough TG-5 Setup and First Use - 20th Oct 18
Israel’s 50-Year Time Bomb, Pushing Palestinians to the Edge - 19th Oct 18
Bitcoin Trend Analysis 2018 - 19th Oct 18
History's Worst Stock Market Crash and the Greatest Investing Lesson! - 19th Oct 18
More Signs of a Stocks Bull Market Top and Start of a Bear Market in 2019 - 19th Oct 18
Stock Market Detailed Map Of Expected Price Movement Before The Breakout - 18th Oct 18
Determining the Outlook for Gold Mining Stock - 18th Oct 18
Investor Alert: Is the Trump Agenda in Peril? - 18th Oct 18
Stock Market is Making a Sharp Rally After a Sharp Drop. What’s Next? - 18th Oct 18
Global Warming (Assuming You Believe In It) Does Not Affect Gold - 18th Oct 18
Best Waterproof Compact Camera Olympus Tough TG-5 Review - Unboxing - 18th Oct 18
Silver's Time Is Coming - 17th Oct 18
Stock Market Volatility Breeds Contempt - 17th Oct 18
Gold 7-Year Bear Market Phase Is Over - 17th Oct 18
Gold - A Golden Escape - 17th Oct 18
Tec Stocks Sector Set For A Rebound? - 16th Oct 18
Real Estate Transactions are Becoming Seamless with Blockchain-Powered Data Sets - 16th Oct 18
Important Elements of a Viral Landing Page - 16th Oct 18
Stephen Leeb Predicts 3-Digit Silver and 5 Digit Gold?! - 16th Oct 18
BREXIT, Italy’s Deficit, The EU Summit And Fomcs Minutes In Focus - 16th Oct 18
Is this the Start of a Bear Market for Stocks? - 16th Oct 18
Chinese Economic Prospects Amid US Trade Wars - 16th Oct 18
2019’s Hottest Commodity Is About To Explode - 15th Oct 18
Keep A Proper Perspective About Stock Market Recent Move - 15th Oct 18
Is the Stocks Bull Dead? - 15th Oct 18
Stock Market Bottoms are a Process - 15th Oct 18

Market Oracle FREE Newsletter

Trading Any Market

Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside

Commodities / Crude Oil Jan 16, 2018 - 09:06 PM GMT

By: Boris_Dzhingarov

Commodities

Crude oil is starting out strong in 2018 as both the international Brent benchmark and the West Texas Intermediate continue to book price gains. The gains in crude oil prices this year is riding the waves of the uptrend in oil prices that began in 2017. Now, the U.S. West Texas Intermediate is trading up around $63.57 per barrel and the Brent crude is trading up around $69.20 per barrel. 


Commodities analysts and experts are becoming more optimistic about the prospects of crude oil this year. Analysts at Citigroup have hinted that they expect crude oil price to move into the $70 to $80 range as geopolitical uncertainties reduce the supply. Bryon Wien of Private Wealth Solutions opines that crude oil will cross $80 per barrel because “demand is going to continue to increase faster than supply.”

Despite the obviously predominantly bullish trend in the market, some commodities experts are sounding notes of warning that it might probably be too early to conclude that crude oil is back to winning ways.  Below are some of the factors that could precipitate a bearish case for crude oil.

Factors that could send oil prices lower

To begin with, much of the volatility that crude oil prices suffered in the last three years is a function of the battle for market dominance between OPEC and U.S. Shale oil producers. OPEC had initially refrained from arresting the freefall in oil prices in the hopes that the low prices will make shale drilling unprofitable and force U.S. shale oil producers out of the market. Interestingly, shale oil producers have shown an impressive resilience to stay afloat even when oil was as low as $39 per barrel.

Hence, you can reasonably imagine that the current uptrend in the price of crude oil will make it easier for shale oil drillers to pump out more oil and trigger another supply glut. In the words, a Carrie Young, a commodities analyst at Wilkins Finance, "it would be foolhardy to ignore the lingering concerns about the possibility of a short-lived bullish rally as U.S. shale expose oil to bigger downside risks."

Secondly, the demand for crude oil could start to drop off as the worst part of winter ends and there's less need for crude for heating purposes. Another factor that could trigger a decline in the demand for crude oil is the fact that Asian refiners have taken advantage of low prices in the last three years to book huge profit margins. For instance, Chinese diesel exports have jumped more than 3000% to 2 million tones and its gasoline exports has surged more than 365% within 2 years to more than a million tons in December 2017.

However, the recent uptrend in oil prices will inevitably trigger a decline in the margin of Asian refiners. The drop in margin could in turn cause Asian refiners to reduce their demand for crude oil in the hopes of forcing a decline in prices.

Analysts preach caution and restraint

Some stakeholders in the global crude oil market  are worried that the objectively bearish sentiment outlook on the crude oil market are being drowned out by the cacophony of bullish voices. In the words of Ole Hansen, head of commodity strategy at Saxo Bank, "bullish news tends to get more attention than potentially bearish signals."  If the bearish signals come into play on oil prices, it won't be surprising of the current uptrend stalls and the price of crude oil declines into correction level.

By Boris Dzhingarov

© 2018 Copyright Boris Dzhingarov - All Rights Reserved
Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules