Oil in Global Economy Series: What Fundamentals at Play in Oil Market Currently?

Oil in Global Economy Series: What Fundamentals at Play in Oil Market Currently?

19 May 2016, 13:52
Roberto Jacobs
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Oil in Global Economy Series: What Fundamentals at Play in Oil Market Currently?

North American benchmark WTI, has risen 85% or more from its February low and up around 28%, so far this year. It is now challenging a key resistance ($49/barrel) around more important psychological level ($50/barrel). It has fallen a bit over stronger Dollar in past two days and currently trading at $47.2/barrel.

While thanks to shale development and rivalry in OPEC, we, at FxWirePro, expect oil price to remain lower for longer, we also calculate that it may reach as high as $70/barrel.

Let’s have a look at the current fundamentals that are influencing oil price –

Production outages and halt –

Large portion of current oil market sentiment is outages, production disruption and cut. A raging wildfire in Canada, Alberta is estimated to have taken out 1.8 million barrels/day worth of supply in May. Militant attacks in Nigeria’s oil production facility, terminals and at pipelines have taken away as much as 0.8 million barrels/production offline. Total outages from Saudi Arabia, Kuwait, Iraq, Libya and Iran have reached close to 2.5 million barrels/day including Nigeria. Venezuela, another OPEC country with world’s largest oil reserve suffering severe economic crisis and oil production is dropping fast there.

Saudi Arabia and Iran to raise output –

Saudi Arabia, under the new regime is aiming for 11 million barrels/day, worth of production looking to increase its market share amid supply disruption elsewhere. Iran has already boosted its exports by 600,000 barrels/day this year and production is at its highest since 2011. Can it keep going further?

At what price Shale0rout ends –

Will the recent price rise be enough to halt rout in US shale oil production, a sector that has been severely hit by lower oil price leading to numerous bankruptcies. US oil production has already declined to 8.8 million barrels/day from last year’s 9.4 million barrels per day.

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