There has been a massive chaos in the energy sector from the very beginning of the year 2016.However, things have settled to a certain level in the global economy due to the recent oil cap production by the OPEC. In the last Friday, the price oil traded lower in the global market but still managed to gain the largest yearly gain since the year 2009.The current supply level of the oil is expected to get lower in the near term future as OPEC leading members taken the initiated to limit the production of oil from the very beginning of the year 2017.Such an event from the OPEC has not been seen in the global industry for a long period of time and it’s the first shake given by the OPEC to the energy sector since 2008.However, the current number of oil rigs has been significantly increased in the United States and this has created a massive confusion into the mind of oil investors.
If the U.S economy continues their oil production on a larger scale then we will see a strong bearish momentum in the oil price in the year 2017.Currently, the number of oil rigs in the U.S is 525 but in the very beginning of the year 2016, it was only 12.Such a dramatic increase in the number of oil rigs clearly demonstrates that the U.S government is getting ready for massive oil extraction operation. In the last trading week, the West Texas Intermediate crude futures dropped by 5 cents which resulted from a fall of 0.1 percent in the price of oil. At that time the price of WTI was trading at $53.72 a barrel and on the other hand, the Brent dropped by 0.1 percent and traded at $56.82 per barrel. To be precise, on the last Friday the price oil dropped in the global market but still ended with a strong positive gain in the year 2016.
The recent drawdown in the price oil is due to the oversupply problem in the global economy. Most of the leading oil producing countries in the world are producing huge amount oil which is exceeding the current demand of the market. On this event, the price oil was sharply dropping in the global market from the year 2014.But in the last OPEC meeting they have announced that they are going to limit the production of to 1.8 million barrels per day. If they manage to implement their plan in the global economy then the supply curve will fall and as a result of the scarcity the current demand level will increase. Usually, the price goes higher in the commodity market when the supply is tightened in the market.
Most of leading oil producing countries have appreciated OPEC decision and also casted their vote of confidence on them. Russia has already declared that they will limit their current production of oil in order to bring stability to the price of oil. To be precise everything was extremely positive for the oil investors but the last news data on U.S crude stock demoralized the oil traders in the market. Moreover, Iraq has already stated that they are not yet ready to limit their oil production. Currently, Iraq is producing near about 6 million barrels of crude per day and if things continue like this in the near future we will see a strong bearish movement in the price oil from the very beginning of the next year. Most importantly there is no external force to control the situation of Iraq due to the recent massive troops pull out from the Iraq.
The year 2016 started with extreme chaos since the oil investors were suffering from extreme level of uncertainty due to a sharp drop in the price of oil. However, things have dramatically improved in the oil industry after the OPEC decision and the leading economist researcher is saying that the price oil might rally high in near future. In the eyes of professional traders, currently the price oil is trading near a critical support level in the market and if the current support level holds then there might be strong bullish rally waiting in the oil market. Though the current stock of crude in the U.S is extremely high but the leading researcher are saying that the U.S government will come up with a solid plan to limit the current oil production rate. Moreover, the FED has also raised their interest rate on the basis of 25 points in the market in the last FOMC meeting minute. This has also created strong bearish pressure in the oil market.
Some professional traders are overly cautious about the next year since FED chairperson Janet Yellen has stated that they are going for three projected rate hike in the next year. The current strength of the green bucks in the global economy is extremely high and a stronger dollar usually pushed the price of oil lower in the market. However, due to the recent slip of the U.S dollar index in the global economy, the professional traders are thinking that the bulls of the green bucks are running out of fuel in the market. So if the year 2017 starts with a bearish momentum in the U.S dollar index then there is strong chance that we will see a strong bounce in the price of oil. But the current market conditions and economic performance of the U.S gives a solid ground to the green bucks. So it’s better to stay on the sideline until the market gives us the clear direction.