Oil prices have long stayed range bound, but all that may soon change, as the signs of restricted supply become ever so evident. For the second week running, the US oil rig count dropped, bringing the tally to 860 oil rigs. The US oil production has almost come stagnated since May 2018, and the growth story on the shale front is not too encouraging either.
Couple that with increased risk associated with the freshly proposed international regulations over maritime fuels – and the international oil prices may be looking to add more premiums to the current levels. Recall that the new proposed regulations require the global shipping fleet to ensure a reduction in the sulfur concentration in the fuel from existing 3.5 percent to 3 percent. While, it may be doable, but the process would still be challenging according to experts, would take more time than earlier anticipated, and could be costly for medium sized players.
That said, it may not be a sudden spike as demand has not gone tearing the roofs yet. But heightened tensions of the USA with major trading partners have already sent bullish signals to the market that is facing supply constraints. The fresh sanctions on Iran, to be effective from November, also promise to play its role in fueling up the global Brent rates.
Recall that the Opec spare capacity is already down to critical levels, after the production freeze deal was extended earlier this year. The Opec spare capacity is now under 3 percent of the total global oil demand, which is the lowest in 12 years, and leaves oil price open to greater level of risks, should a calamity hit the global supply equation.
The producers have also seen signs of the same, evident from low re-investments rates across the globe. The global oil demand is expected to cross 100 million barrels a day in 2019, as per most estimates, and the supply side may fall well short of it, and the global reserves may look thinner than they are today.
Some surveys have shown that investors are not writing off triple digit oil prices by as soon as the end of 2018. From what it appears, both the demand and supply equations are heavily tilted towards a bullish bias in the international oil market, and unless something drastic happens, oil is expected to break the long held range, and go marching north.
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