The future of oil business
On November 30, OPEC members held their meeting at Vienna and all 14 members have agreed to cut oil supply in 2017. Daily production will be reduced from current 33.8 million barrels per day to 32.5 million barrels per day from January onward.
However, market analyst remain sceptical if this agreement can be reinforced in good will as many country members have been yearning for exemption for past months. Most of them are heavily dependent on oil exports as national revenues and already in reds for past two years. Among all, Saudi Arabia take the lead by cutting 500,000 barrels production per day.
After the news outbreak, WTI Crude prices spiked up on Wednesday late Asia hours and reached almost US$ 50.00 per barrel. Many oil traders believe this price lift could be short-lived and might begin to drawdown very soon.
From the OPEC agreement, all 14 members agree to cut supply for the first time in eight years to commonly support price recovery. Nevertheless, no penalty is outlined if anyone in the conglomerate revokes the agreement.
Technically speaking, we foresee the price recovery of crude oil gong above US$60 per barrel may easily trigger the new production of shale oil again.
Hence, it will be a difficult task to forecast the recovery to higher than this benchmark in future years unless the world population growth supersedes the consumption.
Alternatively, any cheatings if found among the OPEC members will quickly punt the Crude prices back to US$40 per barrel. In addition, Russia has not expressed its status in the plan of cutting supply as a non-OPEC member. In our opinion, it will be a tough challenge for oil production and export business in coming years for the sake of competition with shale oil amid global recession.
In 2017, we expect the range of crude oil prices to move from US$35 to US$60 per barrel. What will probably support the general commodity prices including the oil demand might come from a weaker dollar if Trump partial succeeds only in his bragging policy. Hence, stay cautious in crude investment as it runs higher in near future.