Last year oil prices came crashing down due to the oversupply in the market. The Organization of Petroleum Exporting Countries (OPEC) invited the members to focus on reducing the saturation in the market. Leading petroleum exporters such including Saudi Arabia have agreed to cut down the production honoring the OPEC deal. Even the non-members of OPEC such as Russia have agreed to reduce the oil production. Since 2014, inventory surplus of crude oil has not allowed the price to increase. The OPEC deal was announced by November 2016 to trim the global oil stockpiles.
Despite the OPEC deal, the oil prices experience a loss mainly because the US production has increased. This resulted in an increase in the oil inventory all over the USA. As a result, the crude oil missed out on the gains after the OPEC deal. The US crude fell below $50 per barrel for the first time this year. The market is in an indeterminate state now and experts are worried how long this trend could continue.
The oil market was ready for restructuring after the OPEC deal. The oil prices were meant to be maintained at a premium level so that the OPEC revenues could increase. However, the trend shows that WTI prices are moving in the backward direction, as against the OPEC hopes. The options futures market is also bearish which is again not good for the oil prices. The difference between bearish and bullish bets indicate that the market is favoring lowering oil prices. On Wednesday, the Nymex WTI contract showed that the volume of traded options futures reached an oil time high. The investors are want to be protected against the lowering oil prices. This was not what OPEC hoped for when it created a deal to reduce the oil supply.
OPEC’s hope for higher prices is further crushed as the short sellers want to take advantage of the reduced oil prices. New bets are placed on the falling oil prices and this has increased the number of outstanding WTI contracts. Both the WTI and Brent reached a value lower than the 50-day and 100-day price averages respectively. $50 per barrel provides a good support for Brent. Experts suggest that $45 per barrel could be the figure in the future, but the market has to be adjusted to make this a possibility.
There is still hope for the oil prices to increase if the countries stick to the OPEC deal. Analysts predict that oil prices could reach $60 by the end of 2017 if the current cut in production is sustained. The WTI could go down reaching the mid-40s but continuous effort to reduce the supply could enable rebalancing.
Even though the US oil stock piles increased by 8.2 million barrels in the last week, the reduction in oil prices is triggered suddenly as the Saudi Energy Minister commented that OPEC deal won’t be rolled over to the second half of 2017. The energy minister said that the oil producers are not happy that OPEC deal hasn’t resulted in price hikes.