Oil Outlook

24 Feb 2019

 

The price drop in Q3 of 2018 prompted inventory building in the face of winter drawdowns. The level of buying is indicated by the gap between the blue and the red lines, rather than the distance from the 0 line. This demand has pushed prices up this year.

USA is now firmly established as the number 1 producer globally following “discussions” with Saudi/Opec and Russia which resulted in increased market share for US frackers. This in itself doesn’t move price but the change in market shares does mean that USA has increasing weight in the 3 way conversation with Saudi/Opec and Russia. In a strange development, a Saudi tanker arrived in Venezuela of all places, after “taking a wrong turn”. Reminiscent of the Saudi tanker that turned up in Poland a couple of years ago, Europe is understood to be Russian territory in this global free market of oil supply and demand.

US Fed is teetering on the brink of an about turn on rate policy. If they announce a moratorium on rate hikes there will be a dip in the dollar, providing a boost to oil prices and most commodities.

The Saudis most recent missive on price grants the markets $70 per barrel. Last weeks trading took us nicely from $61 to $66 and we should look for a smooth ride to the neighbourhood of $70. If anything, US interest rate policy speculation will cause an overshoot into the low 70s.

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