By Halliwell, Cat
09/07/2017

July Oil Market report: 6 month oil review

We’re in the second half of the year, so not a bad time to take stock of the oil markets. In January, some predicted that, due to the planned production cuts, oil prices would creep up slowly throughout the year - but this clearly hasn’t happened. Instead, we have seen fairly flat / falling prices within the $45 - $50 per barrel range.

Every single week of 2017 has seen an increase in the number of operating US oil rigs so that as of last month, the total number is 750 – a 17% increase since the beginning of the year (January rig count was 630).

The resulting increase in US oil production has not only contradicted OPEC’s well-publicised production cuts, but it has also outweighed them, creating the downward drive in prices that we saw last month. Not surprisingly, this has collectively left OPEC wondering what they can now do to affect world oil prices. Even the agreement of Russia to join in on production cuts has had little effect and the fact that in May’s meeting, OPEC announced extended cuts until March 2018, passed off with barely a whimper from the markets, may indicate that OPEC is now a busted flush…

By excluding Nigeria, Libya and Iran from the production cuts, OPEC’s production has not actually fallen. And depending on the accuracy of data coming out of Iran, it may have actually risen! So however disciplined the Saudis and Russians have been in holding back oil from the market, the world’s supply glut has continued and we are almost back to square one, with the shalers and OPEC facing off in a spiral to the bottom.

Oil consumption is already up by 0.75m barrels per day this year and with an almost universal consensus that oil consumption growth will continue to a peak of around 100m bpd (currently at 91m bpd) by around 2025.                                                      

So where will this leave oil prices for the rest of the year?  Market speculation of $65 per barrel now looks unlikely, but then again the oil industry teaches us that the expected rarely happens and never in an expected manner.  A change in economic policy from either China or India, to artificially inject growth into their economies, could generate a significant increase in demand, leading to prices rising. On the flip side, don’t forget President Trump’s promise to reintroduce sanctions on Iran and the unrest between Qatar and the rest of the Middle East. If that turns properly nasty, the (upward) impact on oil prices could be huge. The different factors affecting the price of oil are currently so unpredictable, that it is very hard to be completely sure what the outcome will be.

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