Oil prices hit highs last seen before the 2014 slump thanks to continuing violent protests in Iran as well as the momentum from production outages that occurred last month in Libya and the UK. On top of that, preliminary data about OPEC’s production in December suggested the cartel had stayed below its self-imposed ceiling of 32.5 million bpd, in keeping with its production cut pledge.
Yet so much good news could turn into too much good news. The OPEC figures, for instance, were achieved not thanks to conscious effort on the part of the members but to external factors, including the pipeline blast that took an estimated 30,000 bpd off Libya’s December production and the 50,000-bpd slide in Venezuela’s output – a slide that has been ongoing for a few years now and there are no signs of a reversal in the near future.
At the same time Nigeria, Kuwait, and Iraq increased their oil production, while Saudi Arabia once again cut deeper than it was supposed to, seeking to make sure prices stay high. In spite of the Kingdom’s efforts, however, we could see a price correction soon, some analysts have warned.
Net long positions on WTI, gasoline, and heating oil hit their highest in the week to December 26, reaching 1.183 billion barrels. This means that there is little space to buy anymore but a lot of space to sell and a selloff is unavoidable. At the same time, the effect of such a move by speculators would be limited, as long as the…