Why the Oil Price Surge Is Set to Continue

Watching the price of oil is like watching the price of bitcoin. Many are asking themselves when this rally will end.

Granted, oil’s surge is nowhere near as high as bitcoin’s in 2017. But few things will ever be.

Since hitting a recent low on 22 June, the basket of OPEC (Organisation of the Petroleum Exporting Countries) crude oil prices has rallied more than 44%. In the last 12 months, the same basket is up more than 40%.

crude oil price

Source: Quandl

Like bitcoin, there’s a lot of speculation surrounding the future price of oil. Will it climb further? Can it break US$100 a barrel?

Supply and Demand

It’s extremely hard to predict future prices, especially those of commodities. But you’d have to agree that if the supply of oil continues to fall, then prices should continue to increase.

If you haven’t been following the market, OPEC nations have agreed to limit supplies up until the end of next year.

As reported by The Australian Financial Review:

All OPEC members support extending their oil production cuts until the end of 2018, although Russia hasn’t yet committed to the proposal before Thursday’s meeting in Vienna, said people familiar with the matter.

While Russia and the Organisation of Petroleum Exporting Countries have crafted the outline of a deal to continue their curbs for nine months beyond the current end-March expiry, Moscow still has concerns that supporting oil prices above $US60 a barrel will help US shale rivals, the people said, asking not to be identified because the information is private.

This situation underscores the dilemma faced by the 24 oil producers who forged a historic agreement to curb output a year ago. Signs of success are clear — global fuel stockpiles are draining and crude prices are near two-year highs. Yet ministers gathering in the Austrian capital this week have little idea how US shale producers will respond if they continue to restrain their own output until the end of 2018. Until recently, Russia and OPEC member Kuwait had been insisting the decision on extension should be delayed until early next year, hoping the outlook would be clearer.

China Continues to Increase Oil Consumption

While supplies dry up, massive nations like China continue to increase their oil consumption. In March this year, China imported 38.95 million barrels of oil. It shattered all previous records. As Reuters reported:

China’s crude oil imports surged to an all-time high in March to nearly 9.2 million barrels per day (bpd), customs data showed on Thursday, far surpassing expectations and overtaking the United States as independent refiners ramped up their purchases.

The March imports came in at 38.95 million tonnes, or 9.17 million bpd, according to the General Customs Administration.

And there’s no telling whether we’ve seen the peak of China’s demand yet — a fact which bodes well for oil prices.


Härje Ronngard,

Junior Analyst, Markets & Money

PS: Commodities have continued their comeback. Make sure you don’t miss out on spiking stocks prices as resource companies announce windfall profits.

Check out what we believe to be are the top 10 mining stocks trading on the ASX right now.

Harje Ronngard is a Junior Analyst at Markets and Money. With an academic background in finance and investments, Harje knows how simple, yet difficult investing can be. He has worked with a range of assets classes, from futures to equities. But he’s found his niche in equity valuation. It’s not good enough to be right on average when it comes to investing. The market is volatile and it only takes one bad day to ruin your portfolio. You don’t want to end up like the six foot man that drowned in the river that was five foot deep on average. It’s why Harje is constantly reminding investors of their downside risk here at Markets and Money. He does so by simply asking just two questions.  What is it worth? And how much does it cost? These two questions alone open up a world of investment opportunities which Harje shares with Markets and Money readers. Right now Harje is focused on managing research and investments over at the Legacy Portfolio. An investment publication designed to significantly grow investor’s wealth over time with deeply undervalued businesses. Harje also contributes his insights in Total Income, headed by income specialist Matt Hibbard. Harje loves cash-rich businesses, so he feels right at home amongst Matt’s high yielding income plays.

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