Crude oil prices have been giving the totally wrong picture since the beginning of this year. Prices have plummeted to its lowest level since then. Nowadays investors associate crude oil prices with $50 a barrel since prices now do not go beyond this level.
Now that we are in the last financial quarter of this year, let crude prices be unfolded and analyze the rise and fall of the precious black gold on the market.
Analysts and market watchers are sure to see another set of lows for crude oil in the future. Oversupply has taken over the market and currently, there is no way out of the growing supply and disappointing demand. Over 2 million barrels are practically waiting to be dispatched on the market and the situation is the same everyday. Looking back at the other quarters of this year, it can be seen that the West Texas Intermediate crude slipped to a whopping $38 a barrel by the end of August. Crude oil prices have depicted their worst lows in their own history. Tumbling from $100 a barrel was the hardest part to imagine but clinging to $50 a barrel was not even in the thoughts.
The international benchmark, Brent dipped to its lowest by hitting the $42 a barrel but around the beginning of October, prices were seen climbing to the $54 a barrel. However, this was just an eyewash, since prices regained their normal positions navigating around the $50 resistance level. Fundamentals were not in a changing mood given the chaotic situation between Russia and Syria, which impeded on crude supply in the Middle East. In the light of all these facts, some investors are also keeping high hopes of seeing crude oil prices back to the top at $100 a barrel or even cross above. But some remain pessimists too, find out why.
1. The global demand meets the global glut
The global demand failed to meet the global glut given the dampening global economic picture. Analysts think that it will require too much of effort and time in order to bring the balance back on the market. The oversupply threatening the market, has become much more imminent with time while all efforts are being drained out. Remember the downfall of China's economy? Well, bear in mind that China is the now the largest importer of oil in the market. So if it's economy is being dragged down, who has the capacity of replacing such a giant in the market so soon? None, for now. Given the population of China, the oil demand is quite logical and the country not being able to buy this quantity of oil will definitely impact the global economy at large.
These factors have further pressurized prices to stay within a certain limit, but the limit has now been brought below the $50 a barrel. The world bank has cut expectations for crude and now says that prices are expected to remain low continuing in the next year. At most, the average price might try to climb above $50 a barrel, but may reach only to $51 a barrel. Therefore, the range of crude prices remains from $50 to $55 a barrel. There is a weak global growth but Iran's comeback to the market will surely add to crude woes. Next year might be quite hectic for most commodities.
2. The kings of the crude market
Saudi-Arabia and Russia remain the boss of the crude market with their share of production touching the sky keeping in mind that they are both the biggest producers of the market. Both producers have taken refuge in lower prices as they seem to be saving their skin from losing market shares. The Saudis together with the OPEC (Organisation of the petroleum exporting countries) used market pricing to try slow overproduction but have actually added to overproduction by keeping a daily production of 10 million barrels and added to inventories.
OPEC meets in December but associates close to the organisation say that a more downward pressure on crude prices could be triggered. Though they take support of low prices, they will still suffer from the same low prices. Like every producer, low prices means low profit since the demand is not in line with the supply. Sustaining production in a super low environment of oil prices will remain questionable. Eventually the rising production, the falling demand and the low prices will lead to a chaotic situation.
3. Iran- the slow bomb!
Iran could well start to boom the crude market by the start of next year, thus adding to the existing strain of overproduction of crude. The ticking bomb is indeed Iran which succeeded in convincing six world powers into its nuclear deal which in turn would lift the previous sanctions on Iran's crude production and supply.
In guise of curbing Iran's nuclear programs, the main target was to stop Iran from acquiring any other nuclear weapon. So having done, sanctions that levied on Iran would be removed so as to let Iran produce and supply crude oil. The deal was met between Iran and six world powers which are, United-States, Germany, France, Russia, China and Britain. President Obama has the veto power here, since if anything goes wrong with the agreement, he can interfere to bring in any alterations compliant to the deal.
So basically Iran remains a threat to the rising global glut as Iran's lift of sanctions could provoke the global market to reshape. Making way for the intake of so much of crude from Iran shall also shape into drastic measures. Iran could pump around 500,000 barrels of crude per day and this is a huge number added to the existing oversupply. Prices of oil could take another turn and fluctuations on charts may become persistent.
4. The famous inventories and U.S. crude production
Inventories numbers often create changes on the crude market. Weekly issues of U.S. crude inventories has the tendency of bringing crude prices down. A few weeks before, the U.S. weekly crude inventories caused prices to fluctuate many times. However, keeping track of U.S. crude inventories numbers also offers superb trading opportunities.
Commodity trading is gaining much popularity since the rise and fall of the assets are generating a myriad of opportunities. The U.S. faces challenges concerning the build up in crude whereby analysts forecast decrease in inventories that could result into a surplus of crude oil turning into a surplus of gasoline on the market. Too much of gasoline and too much of crude will disturb the balance of prices, which is deemed inevitable if so happens. Refinery grew faster than demand over the two last quarters representing at least 57 percent of margin difference. The same issue created a build up which later converted into a rise in refined product storage.
U.S. shale production has not dropped despite OPEC keeping a high production. The United-States resilience to diminish production has led to a stable production in the country and had earned itself big competitors like the OPEC. Both industries do not produce crude in the same way but their alternatives to fight for the commodity rights have led them to a War. But investors think that a balance in prices still prevail due to the competition. It was no conceivable for shale industries to sustain so long but they did and they are doing well to the surprise of many on the market. The West Texas Intermediate crude is the most affected on the trading here as surplus of gasoline, crude and inventories woes weighs on the prices.
The Bottom line
The rising production does not match the tumbling demand of crude on the market. Nevertheless, hopes are there to see crude oil surge to the mark of $100 a barrel again, just like in 2013. The market trends shall be followed so as to keep an eye on price fluctuation and make sure that you do not miss any trading opportunity.