Joaquín Robles is a Bachelor in Business Science, with a specialization in Private Banking and Financial Counseling by the I.E.B. He is also an Account Manager at XTB
Despite the fact that we’re only a few days into the new year, the oil market remains quiet. Prices have moved in a narrow range between $57.10 and $53.64 per barrel for the first few weeks. For the most part, this balance is supported by the deal reached by OPEC members in late-2016. However, the market is still reluctant to the possibility that all members will comply with its terms, with six months still remaining to complete the agreement; in spite of this, it seems that for the moment all participants are complying.
After the agreement, Russia joined the OPEC and other non-OPEC members that agreed to cut their combined output by 1.8 million barrels per day until June. Investors are waiting for the January 22 meeting, when the first Monthly Oil Market Report after the cut deal will be published, and speculators will be able to measure the 24 participants’ level of commitment. The rest of the more relevant decisions, like whether the agreement will be extended until June, or reviewing of the level of commitment, the response of the market, supply and demand, and stock levels will not be discussed until the May 25 meeting.
The OPEC has not set a goal price, but anything below the $50 mark would be a failure for the cartel, which does not want to go back to 2015-2016 prices. The biggest threat continues to be themselves and the confidence they project to the market, although the decisions taken by major U.S. producers that may take advantage of the price level to increase their production will also be decisive. The first reports on the forecasts for U.S. oil published last week showed an important increase for this year.
The first goal, which was balancing the market, seems to have been accomplished, and although we will surely see different destabilizing situations during the year, we rule out scenarios that are as volatile as the ones lived over the past months. During the first half of the year, it is possible that the established range between $50 and $60 helps when it comes to designing a strategy with well-defined goals.