While OPEC puts all the efforts into revitalizing the global oil market, oil prices do not seem to be able to break the $60 per barrel level for now. What does 2018 Oil price forecast suggest? Will oil break above 60$?
26 October, AtoZForex – Oil prices have been flirting with $60 price level some weeks ago. Yet, the black gold could not break the resistance level, afterward rapidly retreating. Can oil break above 60$?
Global oil Market Impact Factors
The global benchmark Brent has reached $59.77 per barrel on September 26. It has slid back to $55 level just some days after. Industry experts believe that there are a number of reasons for the stagnant oil prices.
OPEC deal effectiveness
Oil prices trade within the same range despite efforts by the Organization of the Petroleum Exporting Countries (OPEC) to reduce the global oil glut. Moreover, even the tensions in the Middle East did not affect the prices. In addition, doubts over OPEC deal effectiveness and fears of the compliance level weighs on prices.
Following on this, there is a short-term reasoning for the recent slid in the oil prices.
Hedge funds and other money managers have accumulated a big amount of bullish bets on the oil futures market. They have hopes to ride the oil rally. Yet, the rally has come to a dead end – and investors started to pull out the positions.
US shale production band
Furthermore, there is another important factor that impacts global oil prices – US shale. The US oil output has risen largely this year. Thus, markets speculate that the US shale will trap oil prices within the $40-$60 range. How?
Once oil price slides below $40, production drops; when the prices rise up to $60, producers hurry to produce more oil, deploying as many rigs as possible.
There is a reason why US shale production is such an essential factor. Market experts monitor it due to the short lead times for new supply. For instance, the state-owned oil projects will not go offline when the oil price drops to $30. They also won’t go online immediately once the oil price jumps to $60. They would need years of planning and a lot of investment.
On the other hand, shale reacts quickly to prices. Shale supply is much more elastic in comparison to other forms of oil production. As a matter of fact, now, US shale production makes up around 5% of the global oil supply. Therefore, it represents the marginal barrel in the short run. While market experts believe that the oil industry now breakeven at about $50 per barrel. Therefore, the US shale range theory seems realistic.
2018 Oil price forecast: Can oil break above 60$?
The main issue is the psychology of the market at this point. As soon as oil flirts with $60, oil investors become cautious, expecting the prices to slide back. Therefore, most of the hedge funds and other money managers sell off, which, in turn, creates a drop in prices.
So, will oil break above 60$ in 2018?
According to some of the market analysts, oil will struggle to break this level without the help of some major event. Moreover, if the oil breaks this level, it will be quite hard to sustain it.
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