Weeks before the highly awaited OPEC meeting in September, oil prices ticked higher unexpectedly. The prices of oil were initially thought of declining further due to oversupply concerns and as the Fed heightened the possibility of a rate hike very soon.
On Monday, Brent crude lost 1.42 percent, while U.S. crude dropped 1.34 percent. During the session earlier, U.S. West Texas Intermediate crude and Brent crude futures rallied 17 cents and 12 cents respectively.
The recovery of oil came as a surprise as the Saudi Arabia and Iraq remained aloof with any intervention with the glut concerns. Previously, Saudi Arabian Energy Minister Kahlaid Al-Falih made it clear that intervention was not needed and declared that the market is moving in the right direction. On the other hand, Iran also amplified its production alongside with the intention of Iran to regain its market share.
OPEC Meeting
Most of the market participants have been pessimistic in the outcome of the OPEC meeting. Partly due to the fact that the organization has made numerous attempts to address the glut issue but until now the situation persists. Adding to this, most of the major oil kingpins do not agree with the out freeze suggested by the OPEC.
Other oil producers under the wing of the OPEC want a long time recovery of the commodity and to reach the $50 per barrel. Productions in Nigeria, for instance, faced a great challenged as the violence and chaos in Niger Delta affected the production area. Also, Venezuela hardly awaits for a huge bounce back of the price as it deals with economic brawl.
Oil prices moved higher at the start of the month after the production cut came into the perspective of the investors again. However, the credibility of the organization was fairly questioned, which sent the oil in the red line. Moreover, the commodity dealt with the soaring U.S. dollar after the Fed declared hawkish view regarding the adjustment of the policy rate in September.
Volatility Until 2017
Recently, senior officials at Shell (NYSE:RDSa) and ConocoPhillips (NYSE:COP) concluded that oversupply would probably be extended until 2017. Martin Bachmann, head of exploration and production in Europe and the Middle East at Wintershall AG, said “Basically, volatility is the word. There will be a rebalancing. Over what timeframe is the big question.”
Norway’s Petroleum and Energy Minister Tord Lien had a different view. He said that the rebalancing in the oil market is already happening and part of the supplier industry will continue to have demanding months ahead.
Based on the estimates made by the U.S. Energy Information Administration, the global oil demand may surge from 94.8 million barrels per day this year and could end up to 105.3 million barrels after a decade.
A prominent energy analyst also shared the any immediate change in the supply and demand may improve if the peace holds between the Colombian government and the Revolutionary Armed Forces. The recent turmoil can affect the output figures of Columbia in the years ahead.
Bottom Line
Evidently, the problem among the OPEC members is a unified decision. As OPEC fails to make a firm decision, the oil market would not be stable. Major oil producers would just continue on pumping oil and glut concerns can linger until next year.
Meanwhile, market players still watch closely the rate hike, which could send the greenback higher. Traditionally, stronger dollar makes oil purchases expensive for buyers using other currencies which could affect the demand for the c commodity.
In the meantime, oil would be on a tight range and major price movement is set to happen in September in light of the OPEC and Fed meeting.