Brent having touched $70/bbl late last month, has lost 4 percent in a week. The recent slide has coincided with stability in the greenback, after a long round of depreciation against major global currencies. But the rebalancing in the oil market continues to swing this way and that. That is where, even in times of such global selling pressure, oil has not tanked as much.
The global capital markets saw the worst day in many years yesterday, with the S&P witnessing its worst trading day in over six years. But oil, unlike previous years, showed more resistance than other commodities.
And that too, when the US oil production was recorded at a 50-year high, at over 10 million barrels per day. The US oil rig count is also showing steady increase, having grown in three of the last four weeks. Inventories have not slowed down either. Yet, most investors have shown faith in oil to at least not lose steam, if not gain some.
And the relentless commitment to the output cut deal by Opec and Russia is what has been the basis of relative strength of oil, in times of near turmoil in the commodity and capital markets. Recall that the EIA now expects Brent crude to average $60/bbl in 2018 and $61/bbl in 2019, having averaged $54/bbl in 2017.
Most leading investments houses and banks have also backed up the prediction, expecting oil to stay north of $60/bbl for most of 2018 – even with a relatively stable dollar and ever increasing US production.
The Venezuela impact is also more than offsetting the rise in US oil production, and has complemented the output cut deal rather nicely. The future trading patterns in oil market are reflective of a rather bullish stance for the near term. Also, the shale players have not exactly jumped on the wagon, and are playing it smartly this time around – ramping production, but not at the rate of knots but with a caution.
The global demand has so far been steady, but should the recent downturn in capital markets continue, it could send a wrong signal and forecasts could drop. Disruptions are aplenty to keep the supply side in check. Discipline is also there amongst the larger Opec members. Fundamentals look good for oil to rally, or at least not come down crumbling. A lot will still depend on what steam do the capital markets gather.