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Oil Price at $50; Oil Production


Oil has once again come into focus this week, no surprise there. Both Brent Oil and Crude Oil are now trading below / at $50 a barrel. OPEC and non-OPEC members agreed last year to cut production of Oil (refer Oil Briefing). And indeed there are demonstrable efforts by nations, in that respect. For instance, refer to global chart which highlights Oil producing nations and how far they have come until February 2017, with regards meeting their promises. In summary, 5 of 21 countries reached their target.

The inverse correlation between Oil Supply (production in barrels) and its Price still holds. Steep rise in production from 2014 through to end of 2016, saw Oil price drop from above $80 levels to near $50 levels.

Probably good for consumers but not for the producers, refiners and associated nations and businesses / big Oil companies, with huge investment pipeline in place for next few years. Though, price got boosted by OPEC and non-OPEC co-ordinated efforts on areas of improvements and eventual outlining production cut plans for 6 months (January 2017 to June 2017).

We are nearing end of first quarter of 2017, and this boost seems to be loosing its steam. Last week, Oil dropped below $50 and has been going down further. This was driven by continual increase in the US Oil production. US basically wants to reduce its energy reliance on outside countries and become a self-sufficient nation to produce enough energy required for its own consumption. This whole notion is proving contradictory to what OPEC and non-OPEC have been trying to do. Loss of monopoly to another supreme nation! Impact -> low Oil price, that too both Brent and Crude contracts (traded on UK and US exchanges).

What next from here?

First and fore-most, there are still 3 months remaining for countries that have already met their target to continue meeting them, and a further time-window for those who haven't to buck up and show results on their promises. Producers meet this weekend (Sunday, 26th March) to discuss further efforts and reach an agreement on continuation of production cuts post June 2017. Outcome of this meeting will remain critical to decide direction of Oil price and give further boost upwards, as desired by its committee members. As for the US, it is not party to these discussions and stock pile data released regularly shows growing production. Price in coming weeks will offer good indication of how confident the market is in further promises being made and actions being taken.

We will keeping sharing our views on the topic with critical events that define price-action of this liquid commodity.

#OIL