Oil prices have been trending higher, following a range-bound market that has prevailed since last year. The recent pickup in the rebound of global oil production and ongoing declines in US drilling has supported a bullish sentiment. However, the near-term outlook for WTI oil prices is uncertain due to geopolitical factors such as ongoing Iranian sanctions and high Venezuelan output. In partnership with investors and producers, the International Energy Agency (IEA) is aiming to use regulation to prevent excess supply on the market. As global energy demand grows, regulation can be used to prevent a repeat of 2014’s catastrophic glut in the commodity markets. In 2018, IEA’s initiative to combat oversupply with regulation is still in the early stages, but will likely come into play in the second half of this year.
The organization expects that U.S. oil production will continue to rise for several years, as domestic shale operations ramp up output despite declining costs. At the same time, the Organization of the Petroleum Exporting Countries (OPEC) and non-OPEC producers are near full production capacity and therefore unable to meet immediate demand increases.
Analysis of Oil Prices
WTI oil prices have been trending higher following a range-bound market that has prevailed since last year. The recent pickup in the rebound of global oil production and ongoing declines in US drilling has supported a bullish sentiment. However, the near-term outlook for WTI oil prices is uncertain due to geopolitical factors such as ongoing Iranian sanctions and high Venezuelan output.
Look for oil prices to continue rising over the coming months as global demand continues to outpace supply. In addition, geopolitical factors could push prices up in the short term. US production is still increasing, particularly from shale operations. However, this trend is being offset by OPEC and non-OPEC producers returning to the market after cutting production in recent years. The increase in North American production and OPEC output has put downward pressure on global stocks, which have started to improve. In 2018, IEA’s initiative to combat oversupply with regulation is still in the early stages, but will likely come into play in the second half of this year.
WTI oil prices headed higher in near-term
After a brief correction, oil prices have picked up in recent days. The price of Brent crude has increased by nearly 10% over the past three weeks and is currently trading at US$78.88 per barrel as of writing. WTI oil prices have followed a similar trend, gaining 8% from the beginning of April to reach US$66.79 per barrel in early May.
The pickup in price can be attributed to several factors, including an increase in global demand for energy, healthy levels of global stocks, and geopolitical concerns over Iran’s potential reinstatement of nuclear sanctions. Furthermore, the recent fall in US drilling activity has also supported the current upward trajectory for oil prices.
WTI Oil Prices: The Near-Term Outlook is Bullish Despite a Broader Range
The near-term outlook for WTI oil prices is bullish despite a broader range. A lack of fundamentals to support a price decline has led to an overshoot in the short term. As geopolitical risk continues to mount, oil prices could continue on their current path, given that there are no indications that the downward trend will reverse. In April, the 5-day moving average fell below the 10-day moving average for the first time in almost a year, suggesting that downward momentum is picking up.
Receding Demand for Crude Oil
Global demand for crude oil is expected to decrease as efforts to reduce carbon dioxide emissions increase. In early 2018, India’s 2018/19 budget announced a hike in taxes on fuel prices to curb carbon dioxide emissions. The new tax will increase retail prices by a significant amount, forcing consumers to drive less and use more green energy sources. Additionally, in Paris at the end of April, French President Emmanuel Macron stated that low oil prices were dragging France and other countries down economically.
Oil Prices to Continue Rising in Near-Term
The price of Brent crude has increased by nearly 10% over the past three weeks and is currently trading at US$78.88 per barrel as of writing. WTI oil prices have followed a similar trend, gaining 8% from the beginning of April to reach US$66.79 per barrel in early May.
