Good summary of the oil market by Nicholas Cunningham – posted Friday, 4 August 2017:
There are several significant reasons why oil prices have regained most of the lost ground since the end of May….
- OPEC cuts;
- US shale expansion is slowing;
- Several OPEC members have promised deeper cuts; and
- Drawdowns in U.S. crude oil inventories suggest the market is finally rebalancing.
But inventories are still high, not just in the U.S. And the US (despite shale slowing), Libya and Nigeria are all expected to increase output.
Also, the recent rally is largely attributable to short-covering rather than hedge funds taking fresh long positions.
But there is a wild card:
The one variable that could upend all market forecasts is Venezuela, which has been in economic turmoil for quite some time but is entering a new phase of crisis. The involvement of the U.S. government, which is retaliating against Venezuela for what it argues is a step towards dictatorship, threatens to accelerate the oil production declines in the South American nation.
If Venezuela sees its exports disrupted in a sudden way, the ceiling for oil prices in 2017 could be quite a bit higher than everyone expects at the moment. Otherwise, there is not a lot of room on the upside for oil prices in the short-term.
…it could go up, it could go down, but not necessarily in that order.
Using fundamentals to predict short-term cycles is at best a 50/50 proposition. It’s normally best to stick to technicals (for short time frames). Looks like a secondary rally in a bear market.
Source: This oil price rally has reached its limit – On Line Opinion – 4/8/2017
This looks like a *longer-than-short-term-only* turning point, back up, technically.
I look for it to go up another 10%, and then meander about that level for the next 18 months.
So many negatives – all the obvious, though – have surely been taken into account – the market is not so dumb.
I work on this basic rule-of-thumb: if it’s longer than a normal bear market rally, it’s still a bear market rally. All that rally strength indicates is that the next decline may be shorter than the last (i.e. a bottom is forming).