Analysts are slashing their oil price forecasts, with many making dire predictions. In fact, if these current trends across three key industry metrics continue, crude prices could start rebounding in the coming months, which would be great news for oil stocks since they should ride that wave higher.
In Asia, China’s refinery activity indicates strong demand.
Chinese crude oil imports improved. Global crude oil demand rose to 97.4 MMbpd in 2Q17. Markets have been awaiting data on market re-balancing and better demand this year could help bring the oil market close to balance later this year. Still, there are still no visible signs of tightness in the market.
The Organisation of Petroleum Exporting Countries has no control over the revolution caused by the production of shale oil in the U.S., which is not a member. That signals a disruption in the output from Nigeria. Equatorial Guinea, which became an OPEC member in May, also resulted in the OPEC output increase by 0.15 mbpd. “Data so far is showing that the real spike in production only happened in June”.
The growing concern is that rising Non-OPEC output, led by the USA is increasingly offsetting the reduced OPEC production.
One of the reasons the price of oil has remained well below expectations this year is due to a surge in output from shale producers.
The U.S. active rig count as tracked by Baker Hughes is a commonly cited barometer of the health of the U.S. oil & gas sector. “We need to wait and see more production data before we can make any decision”. EIA forecasts show that U.S. shale oil production is expected to rise further in July.
The number was just short of December’s record high of 11.26 million bpd.
Since January 2017, shale production has started to edge up and is now nearly back near its peak.
In retrospect, the Opec’s output cut was not big enough to “shock and awe” the oil bears, especially since Russian Federation pledged to cut output by a mere 300,000 barrels.
The IEA raised estimates for global oil demand growth this year by about 100,000 barrels per day to 1.4 million, the strongest in two years. Gasoline demand inched up to 9.78 mbpd from 9.70 mbpd which led to stocks declining by 1.6 million barrels. That said, given the comments by its CEO, the company might announce that it plans to run fewer well completion crews this year and hold its production back for when oil prices are higher.
In the light of rising US production, gains from Libya and Nigeria, and doubts over the effectiveness of the OPEC-led pact oil prices fell clearly indicating that markets require more OPEC intervention. “If oil prices persistently trend below our price assumptions ($50/bbl on average until the end of 2018), downgrade pressure for many ratings would increase without material and sufficient further cost and capex efficiencies, disposals, or other countermeasures against weak credit metrics for a sustained period”, S&P states in a report. An extended rally towards higher resistance zone of Rs 3,100-3,120 now looks possible.
Looking ahead, Rs 2,900 is likely to provide immediate support and the short-term bias looks positive above the same.
Buying on dips is thus advised.