Oil Market 2017 – Introduction
Crude oil is the most important resource in the world. It powers everything. From cars to machines used in farming, oil can be found everywhere. Its use is very important such that it has made the countries with the largest deposits become economic powerhouse. Saudi Arabia, a desert makes more than a half a billion dollars every day. The past two years have been a bit complicated for the oil sector. Oil which had reached to a high of $150 a barrel fell to a low of $26 in 2016. Many analysts believed that crude oil will settle at less than $10 a barrel. This year, there is a consensus that oil market prices will rise. In fact, they are starting the year at a high price.
#1 – Supply Cuts
One of the biggest oil market related news last year was about the supply cuts by OPEC and non-OPEC member countries. This was the first such arrangement in decades. The outcome was as a result of major negotiations that happened among these countries with support of Russia and Saudi Arabia. As with other commodities, oil price is determined by supply and demand. An increased demand leads to a higher price will an increase in supply pulls the price lower. As a result, if these countries suppress production, chances are that we will see a higher oil price in the year.
#2 – United States
For a long time, United States was not energy independent. To date, they rely to a large extent on imported oil from Middle-East countries. In the past few years, the US administration have sought to make the country energy independent. This has been boosted by the recent development of fracking technology which the OPEC countries wanted to end with the low prices. With the boost in oil prices, chances are that we will see more oil supply from the United States. This is also because of the campaign pledge of Trump on stopping anti oil energy regulations. Drillers have already been rewarded as the companies have continued to gain in value. Therefore, if the US drillers continue to make advances, chances are that oil price will have pressure going up.
#3 – New Entrants
A few countries have recently discovered oil with commercial production set to begin in a not-so-far future. These countries are in Africa, Asia, and the Americas. In Africa, Kenya, Uganda, and Tanzania have discovered oil in a number of areas. Kenya for instance has more than a billion barrels of oil. Exploration is ongoing. Uganda as well plans to start commercial production after a pipeline to the Indian Ocean is completed. In addition to oil, Tanzania has also discovered huge natural gas resources. If these countries start commercial production in the year, this will add more oil in the global market. This will in turn add more pressure to a bullish oil market.
#4 – Cheating
There is also fear that there might be cheating among the oil producing countries. Though measures have been put in place to ensure this does not happen, the fact is that these countries cannot be trusted. Therefore, in coming up with models on the future price of oil, this has to be factored in. In fact, oil ministers from the OPEC countries will meet in less than 3 weeks in Vienna to discuss this issue. If cheating is reported, chances are that oil price will fall to below $40.
#5 – Dollar
The dollar strength continues to marvel many people. In fact, many experts believe that the dollar will reach parity with the Euro later this year. Crude oil is quoted in dollar terms. Therefore, the strengthening dollar can lead to significant pressure on crude oil market. For sure, nobody really knows what will happen to the oil market in 2017. However, what we all know is that there will be a lot of volatility. For traders, this volatility will help you make more money if you know how to treat and allocate capital.