Oil rises on dollar and market balance expectations

Julian Jessop, chief global economist at Capital Economic, in CNN Money, called the situation “a period of “Goldilocks” oil prices”- low enough to help consumer spending and “high enough to keep major producers afloat”. It produced 33.6 million barrels per day in September.

“This upward pressure on the prices would stimulate some high-cost producers to increase their production, such as the USA shale oil”, Fatih Birol said Tuesday in an interview at the conference venue in London.

The surprise came on Wednesday, Sept. 28, when, “Saudi Arabia agreed to take on the bulk of OPEC’s proposed cuts”, wrote the WSJ.

Goldman said the market could return to a good level of balance between supply and demand by next year, nearly a year later than some analysts expected earlier this year.

The agreement was a breakthrough after unsuccessful negotiations of oil exporters on freezing oil production in Doha in April 2016, where Russian Federation also participated.

China bought a record 5.57 million tons of Saudi crude in January 2013, customs data from the Asian nation show.

US crude inventories likely rose by 2.4 million barrels in the week to October 14, a Reuters poll of oil market analysts found. First, there is a growing dispute within OPEC about the current level of output. In August the state produced 981,000 barrels per day, down from a peak of 1.23 mb/d in December 2014.

It is tempting to look at long-term oil futures – which increased gradually between 2000 and 2014, before falling abruptly after the November 2014 OPEC meeting – to predict where prices will go from here.

The bosses of three of the largest oil traders – Vitol Group, Gunvor Group Ltd. and Mercuria Energy Group Ltd. – forecast prices would be between $55 and $58 a barrel in a year’s time. “At best, the deal, if implemented, may ensure that oil prices do not fall further”. Nigeria aims to raise output by 400,000 barrels a day to 2.2 million, Oil Minister Emmanuel Ibe Kachikwu said in New Delhi.

Oil prices settled down, weighed by oversupply concerns, with a spike in trade volume driving USA prices below $US50, but losses were limited amid a projected drop in American shale output.

BAD TIMING The upward march in oil prices is welcome news for oil-producing countries, but it could spell trouble for Asian energy importers. Demand growth during the first quarter was robust and Goldman said in a note published Tuesday that growth could recover late this year, but remain “flattish” for 2017.

Because of the delay between investment and production for conventional oil production, these projects in non-OPEC countries peaked around the same time the oil market began to slow down, and when expectations about future demand for oil started to falter. The US shale oil producers are smiling because as oil prices rise, their profitability will improve, which will reduce the stress their balance sheets have been subjected to. This is compared to a net long positioning of 278,873 contracts as of the September 20th close.

“Opec’s apparent change in heart is a big surprise, and the market is naturally skeptical as Opec is notoriously non-compliant with its own targets”, Blein said.