COMMODITIES FX by Michael Stapleton
OIL PRICE FORCED TO BOUNCE
The battle between OPEC, non-OPEC and U.S. shale plays is here to stay
Te oil market will trade within a $15 range for 2017. Te Organization of the Petroleum Exporting Nations (OPEC), as well as, non-OPEC members have established a price floor. Tis will ensure that the market does not plunge below the mid-$40 range. Increasing United States (U.S.) oil production has put a price ceiling in place around $60. Tese two factors will force the oil price to bounce between the mid to high $40 mark up to the ceiling at the $60. Te pace of these moves and volatility will be determined by an extension of the OPEC production cuts,
speculators
positions on a tightening market and summer gasoline demand strength.
Te agreement taken by OPEC and non-OPEC members at the end of last year to reduce production has seen a high degree of compliance. Around 90% - 94% depending on which survey is used as the source. Tis is in large part due to Saudi Arabia, which has cut more than anticipated. Tis has offset less rigid actions of other members such as Iraq, Iran and non-member Russia. Saudi Arabia’s intention is to get the oil price to $60 a barrel. Tis will require further cuts, which expire on 30 June. To counter increasing U.S. production, the next round of cuts will most likely have to be deepened. Tis will require commitment from Iraq, Iran and
Russia to abide by the numbers and cut further. If these conditions are fulfilled, you will see Managed Money, the large speculators aggressively buying the market.
Te move from the mid-$40 range towards the end of last year up to the mid-$50 range was instigated by speculators snapping up
long
positions. By March of this year, the number of combined long positions on the New York Mercantile Exchange (NYMEX) and the Intercontinental Exchange (ICE) was at its highest level since records began. Tis showed that funds were firmly behind OPEC and
FX TRADER MAGAZINE April - June 2017 31
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