• 1 hour China’s Growing Appetite For Renewables
  • 4 hours Chevron To Resume Drilling In Kurdistan
  • 7 hours India Boosts Oil, Gas Resource Estimate Ahead Of Bidding Round
  • 8 hours India’s Reliance Boosts Export Refinery Capacity By 30%
  • 10 hours Nigeria Among Worst Performers In Electricity Supply
  • 16 hours ELN Attacks Another Colombian Pipeline As Ceasefire Ceases
  • 21 hours Shell Buys 43.8% Stake In Silicon Ranch Solar
  • 1 day Saudis To Award Nuclear Power Contracts In December
  • 1 day Shell Approves Its First North Sea Oil Project In Six Years
  • 1 day China Unlikely To Maintain Record Oil Product Exports
  • 1 day Australia Solar Power Additions Hit Record In 2017
  • 1 day Morocco Prepares $4.6B Gas Project Tender
  • 1 day Iranian Oil Tanker Sinks After Second Explosion
  • 4 days Russia To Discuss Possible Exit From OPEC Deal
  • 4 days Iranian Oil Tanker Drifts Into Japanese Waters As Fires Rage On
  • 4 days Kenya Cuts Share Of Oil Revenues To Local Communities
  • 4 days IEA: $65-70 Oil Could Cause Surge In U.S. Shale Production
  • 4 days Russia’s Lukoil May Sell 20% In Oil Trader Litasco
  • 4 days Falling Chinese Oil Imports Weigh On Prices
  • 4 days Shell Considers Buying Dutch Green Energy Supplier
  • 5 days Wind And Solar Prices Continue To Fall
  • 5 days Residents Flee After Nigeria Gas Company Pipeline Explodes
  • 5 days Venezuela To Pre-Mine Petro For Release In 6-Weeks
  • 5 days Trump Says U.S. “Could Conceivably” Rejoin Paris Climate Accord
  • 5 days Saudis Shortlist New York, London, Hong Kong For Aramco IPO
  • 5 days Rigid EU Rules Makes ICE Move 245 Oil Futures Contracts To U.S.
  • 5 days Norway Reports Record Gas Sales To Europe In 2017
  • 6 days Trump’s Plan Makes 65 Billion BOE Available For Drilling
  • 6 days PetroChina’s Biggest Refinery Doubles Russian Pipeline Oil Intake
  • 6 days NYC Sues Five Oil Majors For Contributing To Climate Change
  • 6 days Saudi Aramco Looks To Secure $6B In Cheap Loans Before IPO
  • 6 days Shell Sells Stake In Iraqi Oil Field To Japan’s Itochu
  • 6 days Iranian Oil Tanker Explodes, Could Continue To Burn For A Month
  • 6 days Florida Gets An Oil Drilling Pass
  • 7 days Oil Prices Rise After API Reports Staggering Crude Oil Draw
  • 7 days Tesla Begins Mass Production Of Solar Shingles
  • 7 days EIA Boosts World Oil Demand Forecast For 2018 By 100,000 Bpd
  • 7 days Businessman Seeks Sale Of $5.2B Stake In Kazakhstan Oil Field
  • 7 days Exxon Accuses California Of Climate Change Hypocrisy
  • 7 days Norway’s Recovering Oil Industry Resumes Hiring

Breaking News:

China’s Growing Appetite For Renewables

Alt Text

OPEC Should Thank Venezuela For Falling Production

OPEC’s crude oil production remained…

Alt Text

What’s Behind The Canadian Rig Count Crash

Canada’s rig count collapsed from…

Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

More Info

Can We Expect An Oil Price Correction Soon?

Oil

Oil prices touched a more than two-and-a-half-year high this week, but have faltered mid-week. Market sentiment is more bullish than it has been in a long time, but the risk of falling back is still very much alive.

There has been a series of market forces that have come together, all at just the right time, to push Brent up into the mid-$60s per barrel. Falling inventories, near-unanimity from OPEC to extend the production cuts, a slowdown in U.S. shale, bullish positioning from oil traders and some unexpected unrest in the Middle East. Taken together, these factors caused Brent to gain $10 per barrel in the past month.

But as has happened in the past, oil price rallies can quickly reverse if sentiment shifts. That tends to occur when the gains look to have gone too far. And there are some reasons to believe that oil is overpriced at this point, at least according to some trading theories. Bloomberg reports that the 14-day relative strength index for WTI rose to 70 on Tuesday, which suggests that the oil benchmark is overbought. Francisco Blanch, head of commodities research at Bank of America Merrill Lynch, said the top for oil prices could be near, although he said there is some leeway on the upside by about $4 or $5 per barrel.

If the upper limit has arrived, then hedge funds and other money managers could quickly liquidate their long bets, sparking a sudden price correction. Because the current positioning is overwhelmingly bullish, there is probably not a lot of room left on the upside. If the herd exits all at once, prices could quickly slide. Bloomberg also cited the exodus of capital from an ETF that tracks oil prices as evidence that sentiment is starting to shift. “You have to treat it like a hot potato, to avoid getting your returns corroded by the roll,” Eric Balchunas, an ETF analyst for Bloomberg Intelligence. “The longer you stay there, the longer you could get hurt.”

Related: Is U.S. Biofuel In Jeopardy?

The comeback of U.S. shale is obviously another worry, particularly with oil prices up as high as they are. Shale drillers could also step up their hedging with WTI safely above $50 per barrel, locking on some future production. The most recent data from the EIA should raise some concerns for oil bulls. The agency estimated that U.S. oil production jumped by a sizable 67,000 bpd in the first week of November to 9.620 million barrels per day (mb/d). Meanwhile, crude inventories unexpectedly rose by 2.1 million barrels, halting the steady declines in stocks over the past two months.

“The most notable thing in the EIA report was that production increased. We’re on our way to set record crude oil production in 2018,” Andrew Lipow, president of Lipow Oil Associates in Houston, told Reuters in an interview. Meanwhile, China’s oil imports fell to just 7.3 million barrels per day in October, a sharp decline from 9 mb/d a month earlier.

However, the flip side to this argument is that the shale industry has been running out of steam. The rig count has consistently fallen since August, even with oil prices edging up. Because the effect on actual oil production from changes in the rig count takes several months to materialize, the three-month decline in the rig count since August likely portends production stagnation in the months ahead. Related: Does The U.S. Lead The World In Carbon Emissions Reduction?

The shale industry might spring into action with the recent jump by WTI in the mid- to upper-$50s, but it will take quite a bit of time before that translates into production gains.

Moreover, the EIA might be overestimating how much oil the shale industry is producing. As monthly figures come in on a lag, they are revealing that the U.S. produced a lot less oil in the second and third quarter than we thought at the time.

Finally, geopolitics could still surprise. Venezuela stands out as a place where a major unexpected supply outage could occur. Some see the South American nation losing 600,000 bpd in 2018. If that were to occur, it’s hard to imagine oil prices not going much higher.

By Nick Cunningham of Oilprice.com

More Top Reads From Oilprice.com:




Back to homepage


Leave a comment

Leave a comment




Oilprice - The No. 1 Source for Oil & Energy News