In recent months oil has proved to be surprisingly easy enough and expectations regarding its revised from investors and traders repeatedly. A number of important economic and political statements influenced on pricing policy of “black gold”. The team of analysts and Trade-24 marketing department of the company has decided to analyze the main trends by the influence and recovery in oil prices to the end of 2017.
OPEC and its impact on the oil price
Price drop of “black gold” began from the mid-2014, when the percentage of market oversupply is not less than 145% of the required level of market consumption, after that the price of oil has fallen from $109 to a record of $28 at the beginning of 2016. After that the Organization of Petroleum Exporting Countries (OPEC) decided to intervene in this situation, offering guidelines of many countries to reconsider the daily production levels to increase the intense demand for raw materials. However, during the last two years the leading player in the OPEC – Saudi Arabia and Iran – could not agree for 9 months due to their own quotas, Tehran’s desire to produce more oil after leaving under sanctions and the Riyadh’s dumping policy. However, after Brexit and the role of shale products, countries were able to resolve these contradictions on 30th November.
According to Bloomberg, the results of negotiations shows, that Saudi Arabia agreed to reduce oil production by 486 thousand brl. up to 10.058 million b/d. Iraq is second oil production country in the cartel, now produces 4.351 million b/d, which is 210 thousand less than in October. At the same time, Iran has had an opportunity to increase production from 3.7 million to nearly 3.8 million b/d, but should monitor the level of supply in its capabilities. United Arab Emirates and Kuwait reduced daily production by 139 thousand and 131 thousand respectively. The agreement also encourages countries outside OPEC to cut oil output to 600 thousand b/d.
Based on this position, of 1st January 2017, all the agreements come into force. OPEC Secretary-General Muhammadu Barkindo has repeatedly noted, that the stabilization of the oil basket price will zoom to $60 in the first half of 2017, and later – to $70. Among the representatives of the cartel restrained and encouraging stance for oil support KSA, Iraq, UAE, Iran and Qatar, which on the lot of communication with the press emphasized, that they agree to support the terms of the contract. However, the Barkindo added he did not know, what the fate of the agreement on the reduction of the daily production of “black gold” after May 2017. The reason for this growing is the skepticism of some traders, even though reinforced the purchase of oil futures for March. Also bullish comments of Ministers of Energy and the oil industry in Saudi Arabia and Iran about increase of the growth concerns since June, the contract may be suspended due to failure of key cartel members to adhere to it.
Our analysts and experts believe, that the optimum formula of oil for the first half 2017 will be 58-62 dollars per barrel with a possible deviation of +/- 4-5 dollars. In the second half of the predict price development will be difficult, but the possibility to increase the psychological mark of $ 70 remains extremely skeptical. Only a drastic reduction of supply and reduction of reserves may affect it. However, no less important lever of pressure on the oil price will be on shale resources, which strongly affect the “black gold”.
Oversupply of oil
As the experts from the International Energy Agency (IEA) assure, that the growth of reserves of “black gold” increased over the past two years. The collapse in commodity prices, increase in daily production, sales by dumping practices, the development of new drilling rigs, lifting off the US embargo for the supply of crude oil to European countries, the increase of the trade basket – all this has led to the uncontrolled growth of the total reserves in the storages. However, since March 2016, it began the partial supply of “black gold” by control of the supply from OPEC.
This situation stayed until the end of November 2016, when agreement was reached on the reduction of daily production. After that, the pricing of oil is stabilizing, the level of reserves and the development of new drilling rigs concentrate price at 1-2% deviation from the base of the basket of oil prices to 56 dollars per barrel. However, traders and market analysts have expressed their concerns regarding the retention of the transaction to reduce daily production. They argue that if the terms of the agreement is going to be confirmed, that the world’s oil supply will decrease by approximately 2%.
Although the major oil producers, such as Saudi Arabia and Kuwait, have demonstrated their commitment to reduce the level of production, while other producing countries such as Libya and Nigeria are increasing production on the contrary. Thus, OPEC will check further impact on oil prices, as well as the plans about release its monthly report on Wednesday, while the International Energy Agency report will be released on Thursday. Traders wish to obtain new evidence, that oil producers adhere to its commitments.
Summing up, it is worth noting, that oil prices will further impact the implementation of the cartel agreement on the conditions of extraction of raw materials, as well as an increase in shale reserves will make enough pressure. At the same time, analysts and marketing department of the Trade-24 company suggest that the jump in prices for “black gold” will be in the range of $ 58-62 per barrel from $ 4-6 correction level in the first half of 2017, in the second half – $ 59-63 with correction of $ 5-9.