Are the rumors about oil production cuts just talk?
Oil prices are hurtling above
80
a barrel for both Brent and WTI futures.
Oil reached a year-to-date high in morning trading on April 12 as traders watched demand and a report from a US company indicated a further reduction in crude inventories at the key storage hub of the country.
After OPEC's surprising decision to cut production, oil levels are low in the US and all eyes are on price developments. However, China's openness should keep demand buoyant and support prices, given tight supply.
However, with the ongoing economic crisis and inflation showing signs of strength in the world's major economies, central banks will likely have to raise interest rates again. This will inevitably have repercussions on oil demand.
The Fed can influence oil prices by raising interest rates, thus curbing the run of black gold. An upward trend in rates could lead to stability or even a decline in the price.
When the Fed raises interest rates, economic growth tends to slow down. This can also lead to weakening global oil demand, as loans and investments become more expensive. As a result, the International Monetary Fund also cut its 2023 global growth forecast, and the US Energy Information Administration cut its estimates for 2023 growth by 40,000 bpd. Even if there is limited supply, the price of oil can easily fall under these loose conditions inflicted by a more aggressive Fed.
I also question whether the production cuts are respected. OPEC has few regulations, and we have seen earlier announcements of production cuts that have not been implemented. The issue is simple: with current prices, the more oil you produce, the more revenue you generate. So it is reasonable to expect that the cuts will eventually not be met.
Latest reports indicate that Saudi Aramco will maintain its oil supplies to Asian refineries, despite OPEC+'s plan to cut production by 1.16 million barrels per day from May through the end of the year.
The UAE's state-owned Abu Dhabi National Oil Company has also told Asian buyers it will supply them with full contract volumes in June.
From the technical analysis standpoint, oil prices are trading strongly above the fast moving averages but with declining volumes, which makes me suspect that this rapid price rally may be set to end soon.
According to my model, oil should trade at
75
in the next quarter.
Author's note:
The contents and information presented on this site should not be considered as a solicitation to invest in the financial markets. It is simply a matter of personal opinions and operations.
Oil reached a year-to-date high in morning trading on April 12 as traders watched demand and a report from a US company indicated a further reduction in crude inventories at the key storage hub of the country.
After OPEC's surprising decision to cut production, oil levels are low in the US and all eyes are on price developments. However, China's openness should keep demand buoyant and support prices, given tight supply.
However, with the ongoing economic crisis and inflation showing signs of strength in the world's major economies, central banks will likely have to raise interest rates again. This will inevitably have repercussions on oil demand.
The Fed can influence oil prices by raising interest rates, thus curbing the run of black gold. An upward trend in rates could lead to stability or even a decline in the price.
When the Fed raises interest rates, economic growth tends to slow down. This can also lead to weakening global oil demand, as loans and investments become more expensive. As a result, the International Monetary Fund also cut its 2023 global growth forecast, and the US Energy Information Administration cut its estimates for 2023 growth by 40,000 bpd. Even if there is limited supply, the price of oil can easily fall under these loose conditions inflicted by a more aggressive Fed.
I also question whether the production cuts are respected. OPEC has few regulations, and we have seen earlier announcements of production cuts that have not been implemented. The issue is simple: with current prices, the more oil you produce, the more revenue you generate. So it is reasonable to expect that the cuts will eventually not be met.
Latest reports indicate that Saudi Aramco will maintain its oil supplies to Asian refineries, despite OPEC+'s plan to cut production by 1.16 million barrels per day from May through the end of the year.
The UAE's state-owned Abu Dhabi National Oil Company has also told Asian buyers it will supply them with full contract volumes in June.
From the technical analysis standpoint, oil prices are trading strongly above the fast moving averages but with declining volumes, which makes me suspect that this rapid price rally may be set to end soon.
According to my model, oil should trade at
75
in the next quarter. Author's note:
The contents and information presented on this site should not be considered as a solicitation to invest in the financial markets. It is simply a matter of personal opinions and operations.