Despite traction, oil prices still enmeshed in uncertainty

Oil prices have been on the rebound in recent times. West Texas Intermediate’s (WTI) 50-day moving average rose above the 200-day one, a bullish signal known as a golden cross. Growth in consumption has been stronger than expected this year, helping the recent price gain, but the speed of the expansion in US output has also proved hard to predict.

In the past three years, as US shale production ebbed and flowed, the Organization of Petroleum Exporting Countries (OPEC) made historic shifts in production policy.

WTI crude for November 2017 delivery rose 18 cents to settle at $51.47 a barrel. Total volume was about 23 percent below the 100-day average. The more-actively traded December contract added 33 cents to end the session at $51.84. Brent for December settlement climbed 52 cents to settle at $57.75 a barrel. The global benchmark crude traded at a premium of $5.91 to December WTI.

Despite the traction, oil prices are still enmeshed in huge uncertainty. The world’s biggest oil traders say crude oil prices could rise above $60 a barrel in a year or it might fall to $45.

“Towards the back end of next year we are going to be well above $60,” Jeremy Weir, chief executive officer of Trafigura, said at the Oil & Money conference in London.

Torbjoern Toernqvist, Gunvor CEO said he is cautiously optimistic about the oil market for the year ahead. OPEC will probably sustain its production cuts for at least another six months because Russia and Saudi Arabia have shown they will do what is necessary.

The market has certainly tightened up in the last few months, said Ian Taylor, Vitol CEO but US shale producers still have the ability to drive down prices, just as they did back in 2014.

The disagreement between Glencore, Gunvor and Trafigura on the bullish side, and Vitol Group on the other, underscores the huge uncertainty over the key drivers of oil supply and demand.

The International Energy Agency (IEA) has increased its estimate for 2017 oil demand growth in each of the past four months, now predicting the strongest expansion in two years. OPEC disagrees, forecasting internally that the inventory surplus will finally clear by the third quarter of 2018. The big difference in their outlooks comes down to the strength of supply from outside the producer group. The IEA sees an extra 1.5 million barrels a day of non-OPEC oil production next year, 600,000 above OPEC’s estimate.

FRANK UZUEGBUNAM