Oil price at $70: How far can it go
Oil prices hit $70 per barrel for the first time in more than three years weekend. The last time Brent traded that high, prices were falling off a cliff after the November 2014 OPEC meeting left members producing without restraint, leading to a global glut of supply.
This is no doubt a thing of joy a country like Nigeria which fixed her budget benchmark on $45 per barrel of crude oil. Analyst say if there is no pipeline vandalism and the government is able to ensure that there is peace in the Niger Delta the economy may consolidate on it recovery track.
India’s oil demand grew at its slowest pace in four years in 2017 at only 2.3 percent. Slower car sales, new taxes, and a campaign by the central bank to remove certain currency notes hit retail and wholesale markets – these factors weighed on India’s fuel consumption. India has long been billed as one of the most important growth markets for global oil demand, but it continues to lag behind expectations.
According to Oil Price.com few expected Brent to hit $70 per barrel so soon, and what happens next is a matter of opinion. With outages in key oil producing countries, strong demand expected this year, and ongoing declines in inventories, some analysts see more room on the upside. “Pretty much all of the fundamental boxes are supportive of the current rally and a bit more,” said Paul Horsnell, head of commodities research at Standard Chartered Plc in London. But others believe the rally has gone too far. “Seventy dollars is too much,” said Eugen Weinberg, head of commodities research at Commerzbank AG, according to Bloomberg. “It’s not completely unexpected, given the price momentum. But there will be a reaction in U.S. shale, and OPEC’s strategy will backfire massively.”
The next steps for oil are unclear. Market sentiment is decidedly bullish, but speculators have piled into extremely bullish bets, which exposes the market to a correction if the upward momentum starts to sputter.
The EIA on account of this development sharply revised up its forecast for U.S. oil production this year and next, predicting average output of 10.3 mb/d in 2017 (up nearly 300,000 bpd from last month’s forecast) and 10.8 mb/d in 2019. By November 2019, the EIA says, the U.S. could hit 11 mb/d, surpassing Russia as the world’s largest producer.
The strength of U.S. shale is one of the main bearish factors looming over the oil market, but it remains to be seen if shale drillers can achieve such lofty production levels.
The New York Times had reported that President Trump has declined to fully scrap the Iran nuclear deal, but will issue a deadline to Congress to come up with a solution. Every three months the president needs to issue waivers on sanctions on Iran, and with a deadline imminent, many analysts expected Trump to take the drastic move of declining to issue the waiver, which would have likely led to new sanctions and a return to confrontation between the U.S. and Iran. It appears that he will not go that far, yet. The NYT says he will issue a deadline for Congress to “improve the deal” or else the U.S. will scrap the deal. Oil analysts have projected U.S. sanctions could threaten several hundred thousand barrels per day of Iranian oil production, but unilateral action from Washington won’t be as effective as the coordinated international sanctions from years ago.
Olusola Bello