More Good News For Oil: Some See 20% Upside
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While oil’s rapid rebound has drawn plenty of concern and calls for a near-term pullback, other market observers see more upside on the way for crude, particularly as supply disruptions and the U.S. summer driving season kick in.
Some of the world’s largest producers continue to pump crude at record levels, with the Organization of Petroleum Exporting Countries maintaining Saudi Arabia’s strategy of squeezing out high-cost competitors.
“West Texas Intermediate crude futures for July were trading above $51 per barrel for the first time since July 2015. Crude was higher on the weaker dollar, continued supply disruptions and as U.S. government data showed a drawdown in the nation’s inventories,” reports CNBC. “Some of the factors driving the price higher may be fleeting, and oil is widely expected to come off current levels. But strategists say the charts are telling another story.”
Nevertheless, fundamentals are improving in the energy market. For example, U.S., India and other major consumers are seeing increased demand, the Wall Street Journal reports. On the supply side, U.S. shale production has fallen off in response to the collapsed prices, and producers like Nigeria and Canada have experienced disruptions.
OPEC has kept up production to pressure high-cost rivals, such as the developing U.S. shale oil producers. The International Energy Agency expects it will take several years before OPEC can effectively price out high-cost producers.
“Oversupply remains an issue, as Iran pumps more oil into the world market and other nations continue to produce at high levels. OPEC has also done nothing to curb its production but at its meeting last week, Saudi Arabia‘s new oil minister said the market appears to be balancing and the trend is higher,” according to CNBC.
Saudi Arabia previously said it would join a production freeze deal if Iran agreed to curb output. However, Iran has maintained that it should be allowed to raise production to previous levels before the introduction of Western sanctions over Iran’s nuclear program, instead arguing for individual-country production quotas.
United States Oil Fund
The opinions and forecasts expressed herein are solely those of Tom Lydon, and may not actually come to pass. Information on this site should not be used or construed as an offer to sell, a solicitation of an offer to buy, or a recommendation for any product.
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