Breaking News
0
Ad-Free Version. Upgrade your Investing.com experience. Save up to 40% More details

Oil Market Forces And Indicators Have Changed. What Traders Need To Know Now

By Ellen R. Wald, Ph.D.CommoditiesApr 22, 2021 05:01AM ET
www.investing.com/analysis/oil-market-forces-and-indicators-have-changed-what-traders-need-to-know-now-200574557
Oil Market Forces And Indicators Have Changed. What Traders Need To Know Now
By Ellen R. Wald, Ph.D.   |  Apr 22, 2021 05:01AM ET
Saved. See Saved Items.
This article has already been saved in your Saved Items
 

This oil market is different from anything traders have experienced before, in part because the stabilizing forces and traditional indicators have been turned on their heads.

Here is a look at what some banks, agencies and economists see for the future of oil this year. Below you will also find a look at how OPEC+ might affect the market, with its next meeting scheduled for a week from yesterday. (Note, OPEC+ may or may not hold a meeting next week on Apr. 28—the decision is still being made).

Diverse Opinions On Prices, Supply And Demand

Oil prices have been relatively stable in April, with WTI hovering close to the $60 per barrel mark and Brent a few dollars more. Some analysts, like those at Goldman Sachs and Citigroup, think that prices will rise to $80 per barrel or near that this summer. Indeed, they see demand for petroleum growing to record levels and pandemic restrictions relaxing in Q3.

Others are more skeptical as coronavirus cases in India are now rising and European countries are looking to place more restrictions on travel.

WTI Weekly Chart
WTI Weekly Chart

The U.S. Energy Information Administration (EIA), in its latest Short Term Oil Outlook, sees oil supply and demand converging in Q3 this year and then consumption slightly outpacing supply in Q4. Nevertheless, the EIA’s forecast sees Brent only averaging $61 per barrel in the second half of the year, which would actually be a decrease from the current Brent price, which is around $65 per barrel.

Brent Weekly Chart
Brent Weekly Chart

An interesting view of this forecast was raised by the Chief Economist of the American Petroleum Institute (API), Dr. Dean Foreman, on the Energy Week podcast earlier this week. (Disclaimer: I am the co-host of this podcast). He explained that the EIA forecast includes the assumption that U.S. production will increase by 900,000 bpd to meet growing demand in 2021.

However, based on discussions with U.S. oil producers and assessments of their plans, it seems that U.S. output is unlikely to increase this much and that the U.S. will more likely only see a production increase of half that amount.

If this is the case, and demand accelerates as expected, then prices would rise in the second half of the year, in contrast to what the EIA forecasts. However, much depends on the responsiveness of OPEC+. By failing to increase production, the U.S. will have essentially opened the door for OPEC+ to increase its output by more than it is currently planning.

OPEC+: Reactive Rather Than Proactive

OPEC+ is taking a “wait and see” approach. Right now, it plans to increase oil production gradually in May, June and July with the caveat that it will “tweak” production higher or lower at its now monthly meetings depending on market signals. This might seem like a measured approach, but OPEC+’s own reactionary strategy could be the very thing that triggers a price jump.

This year, instead of setting production quotas for 6 months at a time, OPEC+ has moved to a monthly meeting schedule where it sets production rates 1, 2 or at most, 3 months at a time. Saudi Arabia has also announced “surprise” unilateral cuts that have impacted the market.

OPEC+ is trying to meet each month while still providing enough time for the oil companies to understand the policy and determine their OSPs (official selling prices) for the next month. And OPEC+ is meeting regularly so that it and its members will be able to react to changes in the market.

However, as a result of the increased frequency of the OPEC+ meetings, no one—including the oil companies, their customers and the oil traders—knows what to expect from OPEC+. At the same time, OPEC+ has largely become a market reactor instead of a market setter.

Challenges Forecasting The Next Few Months

Fourteen months ago, oil traders looked generally at certain indicators to forecast prices. They looked at production trends, OPEC+ policy, the general health of economies (to determine future demand), and seasonal issues related to travel, refining, electricity usage (where oil is burned for electricity), etc.

Today, the information traders need has been turned on its head. Production trends in the U.S. are hard to deduce, in part because producers are wary of changes brought on by new government leadership.

OPEC+ has become reactionary, changing policy on a monthly basis instead of every six months. Economic health is no longer organic, but now tied directly to the imposition and relaxation of restrictions and lockdowns imposed by governments.

That is why we see so many diverging forecasts and forecasts changing monthly. Nothing is what it was at the start of 2020.

Oil Market Forces And Indicators Have Changed. What Traders Need To Know Now
 

Related Articles

Tim Knight
Miners Break Out By Tim Knight - May 14, 2021 1

The precious metals miners ETF, VanEck Vectors Gold Miners ETF (NYSE:GDX), has a clear breakout from its downtrend: Gold has been struggling since Aug. 6, but if it can manage to...

Jordan Roy-Byrne, CMT
Gold Is Still Dirt Cheap By Jordan Roy-Byrne, CMT - May 14, 2021 2

On a historical basis, gold remains incredibly cheap. It may seem expensive on the surface, trading near $2,000/oz, but the reality is contrary to the perception. Gold is trading...

Oil Market Forces And Indicators Have Changed. What Traders Need To Know Now

Add a Comment

Comment Guidelines

We encourage you to use comments to engage with users, share your perspective and ask questions of authors and each other. However, in order to maintain the high level of discourse we’ve all come to value and expect, please keep the following criteria in mind: 

  • Enrich the conversation
  • Stay focused and on track. Only post material that’s relevant to the topic being discussed.
  • Be respectful. Even negative opinions can be framed positively and diplomatically.
  •  Use standard writing style. Include punctuation and upper and lower cases.
  • NOTE: Spam and/or promotional messages and links within a comment will be removed
  • Avoid profanity, slander or personal attacks directed at an author or another user.
  • Don’t Monopolize the Conversation. We appreciate passion and conviction, but we also believe strongly in giving everyone a chance to air their thoughts. Therefore, in addition to civil interaction, we expect commenters to offer their opinions succinctly and thoughtfully, but not so repeatedly that others are annoyed or offended. If we receive complaints about individuals who take over a thread or forum, we reserve the right to ban them from the site, without recourse.
  • Only English comments will be allowed.

Perpetrators of spam or abuse will be deleted from the site and prohibited from future registration at Investing.com’s discretion.

Write your thoughts here
 
Are you sure you want to delete this chart?
 
Post
Post also to:
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Thanks for your comment. Please note that all comments are pending until approved by our moderators. It may therefore take some time before it appears on our website.
Comments (6)
freedom byforce
freedom byforce Apr 22, 2021 12:59PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
democrats are in the pockets of big oil. that's why they always bring forth the highest oil prices for them. big oil was the original founder and funder of climate change. emission standards drive up demand for oil because of less effecient engines. democrats are in power 2 things we know will be true. big oil will see record profits and the wealth gap will increase.
Joven Sancho
Joven Sancho Apr 22, 2021 12:32PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
nice
Aliona Malai
Aliona Malai Apr 22, 2021 12:11PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
20009.88
jj gautier
jj gautier Apr 22, 2021 12:05PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
$100 by year end
Joe Wymer
Joe Wymer Apr 22, 2021 12:01PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
What are thoughts of blockchain tech?
Joe Wymer
Joe Wymer Apr 22, 2021 12:01PM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
And what should be a good intial buy in typical 500/1000 or keep low watch it grow?
Jabie Bulie
Jabie Bulie Apr 22, 2021 7:01AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Joe biden has brought confusion and uncertainty to world markets !!
Barani Krishnan
Barani Krishnan Apr 22, 2021 7:01AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Please spare us your bull, Javier Bulie.
inderjeet virk
inderjeet virk Apr 22, 2021 7:01AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
did you hear anything about covid-19 yet?
Peter Murton
Peter Murton Apr 22, 2021 7:01AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
Riiiight... Because we all miss the clarity of new tweets seemingly every day declaring some new economic attack by Trump against God knows who.  Who should we take out today?  Canada?  Switzerland?  Go get 'em then! So much damage for Biden to heal.
Jack Seeley
Jack Seeley Apr 22, 2021 7:01AM ET
Saved. See Saved Items.
This comment has already been saved in your Saved Items
It's the truth..& he is clueless or communist not sure which & only 100 days in office :-((
 
Are you sure you want to delete this chart?
 
Post
 
Replace the attached chart with a new chart ?
1000
Your ability to comment is currently suspended due to negative user reports. Your status will be reviewed by our moderators.
Please wait a minute before you try to comment again.
Add Chart to Comment
Confirm Block

Are you sure you want to block %USER_NAME%?

By doing so, you and %USER_NAME% will not be able to see any of each other's Investing.com's posts.

%USER_NAME% was successfully added to your Block List

Since you’ve just unblocked this person, you must wait 48 hours before renewing the block.

Report this comment

I feel that this comment is:

Comment flagged

Thank You!

Your report has been sent to our moderators for review
Disclaimer: Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. All CFDs (stocks, indexes, futures) and Forex prices are not provided by exchanges but rather by market makers, and so prices may not be accurate and may differ from the actual market price, meaning prices are indicative and not appropriate for trading purposes. Therefore Fusion Media doesn`t bear any responsibility for any trading losses you might incur as a result of using this data.

Fusion Media or anyone involved with Fusion Media will not accept any liability for loss or damage as a result of reliance on the information including data, quotes, charts and buy/sell signals contained within this website. Please be fully informed regarding the risks and costs associated with trading the financial markets, it is one of the riskiest investment forms possible.
Continue with Google
or
Sign up with Email