Before Oil Future close last night Wednesday, the oil prices had increased in seven sessions. At closing last night Brent and WTI dropped almost $2 each per barrel.
The price volatility we see now is created by the speculators, who need that in order to make or lose some money. But oil futures are built like that to attract speculators and non-speculators to act together. One part is betting against the other.
Looking at oil markets at such, there are no fundamentals insight that could allow higher oil prices. Overproduction is worse than ever, meanwhile OPEC and some non-OPEC members, part of the reduction deal of 1.8 million barrels a day, are trying to convince us that everything is working fine i.e. oil storages are being reduced.
Oil remains in a bear market amid concerns that rising supply from Libya to the U.S. will counter production cuts from the Organization of Petroleum Exporting Countries and its partners including Russia. American crude stockpiles are more than 100 million barrels above the five-year average.
U.S. shale drilling is expanding at a surprisingly fast rate, thus raising the odds for significant oversupply in 2018, even if OPEC maintains its production cuts.
Bernstein Research reduced its average Brent forecasts for 2017 and 2018 to $50 per barrel each, from $60 and $70 previously.
Bernstein said the reduction resulted from an expected increase in U.S. shale oil output.
Denmark’s Saxo Bank said oil prices could rise towards $55 in coming months, but it expected lower prices towards the end of the year and into 2018, especially if OPEC and Russia fail to extend their production cut beyond the first quarter of 2018.
Data from the American Petroleum Institute (API) on Wednesday showed U.S. crude inventories fell more sharply than expected, down 5.8 million barrels in the week to June 30, against expectations for a draw of 2.3 million barrels. Later today Thursday the official figures from the Energy Information Agency (IEA) will appear and most probably show less optimistic figures.
Against expectations, OECD total oil inventories are still above 3 billion barrels and the recovery in Libyan and Nigerian supplies, coupled with a fast return of U.S. shale, should prevent steep stock draws ahead,” Bank of America Merrill Lynch said, adding that output was set to rise further.
What oil price can we expect in the near future? In accordance to all logic oil prices should continue its downward trend, mixed with the occasionally upward rebounds to keep the investors happy and in the business. Looks like the oil price will be range bound between $40 – 50 a barrel for a long time.
For next week the market will probably take a breather for a start, but in the end the price will probably edge downward.
* MGO LS
All prices stated in USD / Mton
All time high Brent = $147.50 (July 11, 2008)
All time high Light crude (WTI) = $147.27 (July 11, 2008)
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