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Global Oil supply and demand rebalance causes price volatility

Juhi Banu | Oct. 3, 2017
Global Oil supply and demand rebalance causes price volatility

The recent oil rally signaled the global oil supply and demand rebalance. Yet, it has caused abrupt price shifts. Can oil price push beyond $60 per barrel anytime soon?  

3 October, AtoZForex - In September, global oil production weakened with hurricane-affected refineries. However, the US refineries are upping the production again and the supply will increase. Thus, the prospect of gradually easing oil glut still lends support to a bullish oil price trend.

Despite, there are signs of the global oil supply and demand rebalance, prices edged lower today. As speculators took profits on some large positions that have built up in the last couple of weeks. Brent crude futures were down 7 cents, whilst US crude futures were down 7 cents at $50.51. However, looking at the third quarter overall performance, Brent crude notched up about 20 percent. Marking, the biggest increase for the quarter since 2004, whilst it traded as high as $59.49 last week.

Impact of Global Oil supply and demand rebalance

Money managers have pushed their bullish bets on the Brent crude market to a record high in the last week. It was encouraged by signs of re-balancing between supply and demand. But when positioning becomes too stretched, this can lead to abrupt shifts in the price.

“It’s always problematic when you have this amount of speculative length in the market. The price action ... for me is all about positions and potentially profit-taking on some of those speculative positions,” Petromatrix strategist Olivier Jakob said.

Can oil prices break $60 per barrel level?

Oil prices climbed last week on tension in Iraqi Kurdistan after the region’s independence vote. And also Turkey threatening to close a pipeline that brings oil from the region in northern Iraq to the Mediterranean. But, Turkey has not carried out the threat, analysts said. The recent rally signs that a three-year oil glut is easing, helped by a production-cutting deal among global producers.

“The fourth quarter is not too kind to the price of oil, as we switch from summer demand to expectations of winter demand,” said Jonathan Barratt, chief investment officer at Ayers Alliance in Sydney. “A lot of (refinery) maintenance occurs at this time so feeder demand is not there.” Alongside, Middle Eastern oil producers are concerned the price rise will stir US shale producers into more drilling. As result, it will push prices lower again. Despite these concerns, key OPEC producers still expect a price above $60.

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