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Venezuelan oil minister, Eulogio del Pino, unsuccessfully spent this year trying to forge an alliance around freezing and possibly cutting production to save his country from economic ruin.

Russia also embarked on various diplomatic trips between Riyadh and Tehran without any success.

At this point, the actions of the old guard are no longer required to stabilise the market. Demand will continue to strengthen and supply will decline as current levels are unsustainable.

The oil price collapse has forced large vertically integrated and state companies to reduce expenses and divest in exploration.

In the short term this has no impact on the price as demand will take a few years to run through the excess supply. However, as we approach the end of the decade supply will not be able to keep up with demand.

Global energy, metals and mining research and consultancy group, Wood Mackenzie, conducted an analysis on several thousand conventional oil fields and found that the volume of liquids found since 2000 has halved.

Unconventional shale extraction in the United States is starting to decline and in the coming years there will be no replacement. The supply glut will slowly be replaced by a supply shortfall.

Trading opportunities for 2017

Based upon this data, what trading opportunities are there for oil in 2017?

The United States crude benchmark, West Texas Intermediate (WTI), tested monthly support around the $39 level during August. A positive close for the month confirmed support at $39 and resistance at $62. WTI will grind higher through 2017 in potentially volatile moves as the market finds equilibrium between excessive supply and growing demand.

The oil market will find stability next year as demand slowly soaks up excess supply from non-OECD consumers. This will be the beginning of an increase in the oil price which may see WTI trading above the $100 mark by the end of the decade.

Trading opportunities for the immediate future will be to buy and hold as the market moves through the $50 barrier and advances towards $60’s.          

Michael Stapleton
Crude Oil Market Analyst
Oil Pips

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