Oil prices are trading near a three-year high. However, various analysts have indicated that the rally may have gone too fast. With this in mind, here are the Five Potential Risks to Oil Price Rally that could hamper the ongoing oil rally.
17 January, GKFX– Buyers continue to lurk ahead of the $ 64 threshold, as the sentiment around the black gold remains underpinned by robust fundamentals, in the wake of the OPEC oil output cuts and a pickup in demand for crude globally, as the global economic outlook improves.
Five Potential Risks to Oil Price Rally
While tensions in the Middle East has led to possible disruptions in oil supply (which is one of the supportive factors in the current rally), these geopolitical tensions will eventually subside – and oil prices could lose their immediate support.
2. Crude demand
Oil markets are heavily dependent on demand and supply talks but I don’t see global demand waning that much, not when a global growth is moving forward in such synchronized fashion.
3. OPEC discipline
This is one of the bigger factors that could influence prices. The issue here is compliance – especially in times when prices are rising. It wouldn’t be surprising to see some producers “cut” corners and increase output to take advantage of the higher prices.
4. US drillers
One of (if not the biggest) the contributors to the downfall in oil prices in recent years. Higher prices will give more incentive for US shale producers to pump harder.
5. Market speculators
OPEC’s argument has always been “when prices rise, it’s due to fundamentals” and “when prices fall, it’s due to speculation“. Well, whether or not they want to believe in it, bullish bets on oil has risen considerably in the second half of last year and has even surpassed that of the start of 2017 – according to data from ICE. So, the rally may have just gone too far, too fast and a retracement/correction here is very much a possibility.
This article “Five Potential Risks to Oil Price Rally” was written by analysts at GKFX. The information provided herein is for general informational and educational purposes only. It is not intended and should not be construed to constitute advice.
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