The following article was written by Reem Aboul Hosn, Research and Market Analyst Officer at Credit Financier Invest (CFI) Ltd.
It has been a turbulent few weeks for Crude Oil prices, surging to their highest in over three years at USD 73 a barrel, shortly to slump back erasing USD 8 gains with prospects of further fall influenced by market mixed news. Despite all the bullish commentary around oil prices in 2018, there are plenty of signs that prices are expected to setback.
At the beginning of June, the decline in Oil prices was triggered by Saudi Arabia, the world’s biggest Oil exporter, and leader of Oil cartel OPEC with Russia and other OPEC countries, to increase Oil production to ease global supply concerns. Saudi energy minister Khalid Al-Falih said during a CNN-hosted panel, that OPEC and Russia could supply more Oil to world markets to make up for a collapse in Venezuelan output and the impact of US sanctions on Iran.
Last month, Oil prices climbed to 3 ½ year highs as concern grows about U.S. sanctions on Iran which would cause a decline in Oil supply and push prices up. Both, US pulling out from Iranian nuclear deal and the collapsing production in Venezuela, may provide plenty of upside momentum to prices. With rising concerns about a plunge in Oil exports, Venezuela faces the threat of US sanctions and is in the midst of an economic crisis, nearly a month behind delivering crude to customers from its main Oil export terminals, which is why the price of WTI Crude Oil was higher amid the news.
In an attempt to stabilize Oil prices and combat a potential rise, the U.S. government has requested Saudi Arabia and other OPEC producers like Russia, to boost production by 1 million barrels a day (mb/d) if the decision disrupt supply, according to a Bloomberg report. OPEC Oil producers and Russia are due to meet in Vienna on June 22 to discuss easing self-imposed supply caps, which have been in place since 2017.
Forecasts vary; Oil market analysts are looking into the global supply and demand to guess where the price is heading. While Oil bulls are focusing on the loss of supply from Venezuela and a potential reduction of Iranian exports to justify their view that prices will be heading higher, bears are figuring that OPEC will reverse some of the production cuts in place and bring back as much as 1 million bpd to the market to offset any supply disruptions.
Traders however, analyze charts and apply technical analysis to guess where prices are going and where it’s best to enter or exit positions. Traders also, awaits the discussion between OPEC members about whether they should adjust production levels higher in the wake of a drop in supply from Venezuela and potential sanctions against Iran later this year.