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Oil prices likely to remain volatile over next few months

Friday, 13 January 2017

PETALING JAYA: Despite oil prices having risen the fastest in 6 months, analysts are saying that prices of the commodity will remain volatile over the next few months, given the geopolitical uncertainties.

On 10 December, the Organisation of the Petroleum Exporting Countries (OPEC) and non-OPEC producers came to their first deal since 2001 to curtail oil output jointly, and ease a global glut after more than two years of low prices that overstretched many budgets and spurred unrest in some countries.

They agreed to cut oil output by 1.8 million per barrel from January 2017 for 6 months (till June 2017).

While the market’s focus now have somewhat switched to compliance with the agreement, oil prices have since then been on a roll.

At Wednesday’s close, oil prices recovered by US$1.43 to US$52.25/barrel.

The higher crude oil price as of Wednesday night was a short-covering behaviour, amid Saudi Arabia’s intention to cut sales to China and other southern Asian nations (ex-Japan and South Korea).

Oil prices will likely stay volatile over the next 6 months due to political uncertainties, namely Brexit triggering Article 50 in March, the first round of French elections in April and the lack of concrete cues over US president-elect Donald Trump’s fiscal policies.

Market observers are monitoring very closely on Opec’s fulfillment of its agreement to cut oil production to 32.5 million barrels/day.

Saudi Arabia’s move to limit supplies likely reinforced market confidence.

The oil rally this year remained fragile and that any news suggesting a return to a global supply glut will certainly drag prices lower once again.

This was seen following news of Iraq’s record high oil exports in December, where it dragged prices down near to US$50/barrel.

Oil producers would be exceptionally careful over its production level, preferring higher oil prices than capturing market share.

Oil prices rose more than 2.5% yesterday, the biggest daily rise in more than a month, as the US dollar weakened after Trump provided little clarity on future fiscal policies at a news conference.

Source by: Internet

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