Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
Trump Stocks and Crypto Mania 2025 Incoming as Bitcoin Breaks Above $100k - 8th Dec 24
Gold Price Multiple Confirmations - Are You Ready? - 8th Dec 24
Gold Price Monster Upleg Lives - 8th Dec 24
Stock & Crypto Markets Going into December 2024 - 2nd Dec 24
US Presidential Election Year Stock Market Seasonal Trend - 29th Nov 24
Who controls the past controls the future: who controls the present controls the past - 29th Nov 24
Gold After Trump Wins - 29th Nov 24
The AI Stocks, Housing, Inflation and Bitcoin Crypto Mega-trends - 27th Nov 24
Gold Price Ahead of the Thanksgiving Weekend - 27th Nov 24
Bitcoin Gravy Train Trend Forecast to June 2025 - 24th Nov 24
Stocks, Bitcoin and Crypto Markets Breaking Bad on Donald Trump Pump - 21st Nov 24
Gold Price To Re-Test $2,700 - 21st Nov 24
Stock Market Sentiment Speaks: This Is My Strong Warning To You - 21st Nov 24
Financial Crisis 2025 - This is Going to Shock People! - 21st Nov 24
Dubai Deluge - AI Tech Stocks Earnings Correction Opportunities - 18th Nov 24
Why President Trump Has NO Real Power - Deep State Military Industrial Complex - 8th Nov 24
Social Grant Increases and Serge Belamant Amid South Africa's New Political Landscape - 8th Nov 24
Is Forex Worth It? - 8th Nov 24
Nvidia Numero Uno in Count Down to President Donald Pump Election Victory - 5th Nov 24
Trump or Harris - Who Wins US Presidential Election 2024 Forecast Prediction - 5th Nov 24
Stock Market Brief in Count Down to US Election Result 2024 - 3rd Nov 24
Gold Stocks’ Winter Rally 2024 - 3rd Nov 24
Why Countdown to U.S. Recession is Underway - 3rd Nov 24
Stock Market Trend Forecast to Jan 2025 - 2nd Nov 24
President Donald PUMP Forecast to Win US Presidential Election 2024 - 1st Nov 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Is There Still Hope For Higher Oil Prices?

Commodities / Crude Oil Jun 27, 2017 - 06:09 AM GMT

By: OilPrice_Com

Commodities

Oil prices have cratered in recent weeks, dipping to their lowest levels in more than seven months and any sense of optimism has almost entirely disappeared. All signs point to a period of “lower for longer” for oil prices, a refrain that is all too familiar to those in the industry.

WTI dipped below $44 per barrel on Tuesday, and the bearish indicators are starting to pile up.

Libya’s production just topped 900,000 bpd, a new multi-year high that is up sharply even from just a few weeks ago. Libyan officials are hoping that they will hit many more milestones in the coming months. Next stop is 1 million barrels per day (mb/d), which Libya hopes to breach by the end of July.


U.S. shale is arguably the biggest reason why prices are floundering again. The rig count has increased for 22 consecutive weeks, rising to 747 as of mid-June, up more than 100 percent from a year ago. Production continues to rise, with output expected to jump by 780,000 bpd this year, according to the IEA. Ultimately, the shale rebound appears to have killed off yet another oil price rally, the latest in a series of still-born price rebounds since the initial meltdown in 2014.

Hedge funds and other money managers slashed their bullish bets on crude oil futures in the latest data release. Sentiment is profoundly pessimistic at this point, and because the IEA, OPEC and EIA recently published very downbeat assessments about the pace of rebalancing, a grim mood will be sticking around for a little while. The next reports from those energy watchers won’t come out for almost another month.

In the meantime, the weekly EIA data on production and inventories will have outsized importance, mainly because it is one of the few concrete indicators that comes out on a routine basis. Analysts are now worried that a string of bearish data could push prices down even further. "We cannot afford to have another build in crude or gasoline," Bob Yawger, director of futures at Mizuho Securities USA Inc., told Bloomberg before the latest data release. "The market’s just dying for a reason to buy this thing, but you can’t really do that before" the EIA publishes its next batch of weekly data on Wednesday. Gasoline demand also looks weak, just as the summer driving season in the U.S. gets underway, a period of time that typically sees demand rise.

The market got a bit of a reprieve on Wednesday when the EIA reported some decent figures – a drawdown in crude oil inventories by 2.5 million barrels. Also, imports were flat and gasoline stocks fell slightly.

Still, the figures aren’t enough to put the market at ease.

Amid all this doom and gloom, Saudi Arabia’s energy minister Khalid al-Falih tried to put on a brave face, arguing on Monday that the market will “rebalance in the fourth quarter of this year taking into account an increase in shale oil production.” He waved away the recent price drop, dismissing the importance of such short-term movements in the market.

But with WTI dropping below $45 per barrel, most sober oil market analysts are not nearly as sanguine. OPEC’s objective of bringing global crude oil inventories back into five-year average levels is looking increasingly difficult to achieve, at least in the timeframe laid out by the cartel. “There seems to be very low conviction in the market that there really will be any inventory drawdown in the second half of the year,” said Bjarne Schieldrop, chief commodities analyst at SEB AB.

This is like a falling knife right now, I genuinely haven't seen sentiment this bad ever,” Amrita Sen, the co-founder and chief oil analyst at Energy Aspects, told CNBC on Wednesday. “We have had clients emailing saying they have been trading this for 20 or 30 years and they have never seen something like this.”

One pivotal factor that could really cause prices to plunge is if compliance with the agreed upon cuts starts to fray. There are several reasons why some participants might start to abandon their pledges. Russia, for example, tends to produce more oil in summer months, a fact that might tempt them to boost output. Iraq is also eyeing higher production capacity this year. In addition, weak prices could start to undermine the group’s resolve. "Lack of major upside price response to the OPEC output cuts upping the odds of reduced compliance to the agreement in our opinion," Jim Ritterbusch, president of energy advisory firm Ritterbusch & Associates, wrote in a research note.

Moreover, simmering conflict in the Middle East could continue to grow, threatening to derail cooperation between OPEC members. The conflict between Saudi Arabia and its Gulf allies on the one hand, and Qatar and Iran on the other, could deteriorate. Although that could spark some price gains for crude oil if supplies are affected, it could also undermine the OPEC deal.

One unknown factor that could prevent oil prices from falling further is the possibility that prices floundering in the mid-$40s actually puts a lid on shale production. If U.S. shale underperforms over the next year, the OPEC deal could succeed in balancing the market. But if U.S. shale continues to rise, and OPEC fails to extend its deal beyond the first quarter of 2018, oil could fall to $30 per barrel, according to Fereidun Fesharaki, chairman of consultants FGE.

Link to original article: http://oilprice.com/Energy/Oil-Prices/Is-There-Still-Hope-For-Higher-Oil-Prices.html

By Nick Cunningham of Oilprice.com

© 2017 Copyright OilPrice.com - 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.

OilPrice.com Archive

© 2005-2022 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