A senior analyst at the FXPrimus global financial and commodities brokerage believes that the oil price, having risen by about 60 per cent since February, is likely to drop again but that in any case it will remain volatile in the foreseeable future.
“I think the price is likely to fall back down towards the recent lows, although probably not that low again,” Marshall Gittler, head of investment research at FXPrimus Europe, says on company footage.
“But in any case, I expect the oil price to remain quite volatile as economics, technology, geopolitics and finance combine to provide an unstable supply and demand picture for crude,” Gittler says.
“Oil is an attractive market for investors looking for volatility,” he says.
The recent rally has been caused by “a remarkable turnaround in speculative positions” with investors closing out more than half of the “record” short positions that they held, the researcher says. Meanwhile, they more than doubled their net long positions in oil futures and options.
Gittler also goes over other factors that “push the price around”.
On the one hand, disruptions such as malfunctions at a Venezuelan export terminal and a pipeline bombing in Nigeria resulted in some decline in global production. There are also hopes that a production freeze will be agreed at the planned summit in Doha on April 17 of OPEC and major non-OPEC oil-producing countries.
On the other, China and India have had surging demand for oil, both importing “near-record amounts of crude and products in February”, the analyst says.
Swelling global oil inventories are yet another factor. Gittler says US Energy Information Administration expects them to keep growing this and next year.
One more problem mentioned by Gittler is shale oil production in the United States.
Kim Iskyan, founder of the Truewealth Publishing investment research website and editor of Truewealth Asian Investment Daily, raises the same issue.
The range between $40 and $45 per barrel is the minimum price that makes shale oil production profitable today, Iskyan argues in an Asian Investment Daily article.
If the price hovers around that level or rises further, shale oil production in the United States will increase and this will get the price back down, Iskyan forecasts.
Both Gittler and Iskyan mention Iran as well.
Anticipated growth in Iran’s oil output “will offset the minimal help of any production freeze by OPEC and Russia”, Iskyan says.
“A potentially bigger problem is,” he says, “that some of the oil that Iran has produced hasn’t even hit the market yet. It’s having problems finding companies to insure its oil cargoes, so in February it had about 40 million barrels of oil in storage waiting to be shipped. That’s about six weeks of production by Iran. Once that does come available, it will put more pressure on the price of oil.”
Iskyan says the oil price “probably won’t move up much more this year”.
“That means oil companies aren’t a great investment, especially after share prices have increased in recent weeks. And markets where the recovery in the price of oil has helped – like Russia – are probably in for some disappointment,” he says.