The Vicious Cycle Of Oil

Ladies & Gentlemen

Oil once more trades at a near 2-month low and as vicious as it has been, the oil price collapsing cycle does not look to be over just yet. However, large institutions and Central Banks further seek a longer period of stability, especially in the eyes of the Bond Markets.

The US are still heavily over-supplied and refineries continue to close down, due to mounting costs  from a alack of productivity. The big players are still looking at holding sub $50 and hedging their risk with the Futures Markets... These "players" may be the ones the Central Banks turn to in the near future to assist in the un-cuffing of this downward spiral.

OPEC have been heavily pressured by Venezuela (Country with the World's largest known Oil reserves) to do something about the Oil price and have been supported by one of Africa's biggest Oil producer, Algeria. Contrary to views from the Gulf who are welcoming the lower prices, seeing it as a chance to reform & these contrast of views continue to bear onto a larger Geo-Political issue. But how big is this issue?

Saudi Arabia, the world's largest Oil mover has been doing things recently, that in the last 30 years have been unimaginable ;
1. Withdrawing money from overseas;
2. Delaying contract payments; and
3. Taxing lands.

So how does the Market quantify these issues?.. Let's pause for a second and cast our mind backs to mid 2007 when the Oil price hit $145.00 per barrel and the Gulf generated more money that they knew what to do with & the fact remains that Saudi's Debt:GDP ratio is still less than 2% and in the next 10 years is estimated to stay below 7%... The main Gulf states could actually live comfortably for several years from these revenues built.  So contrary to the "Geo-Politics" - Investors are more focused on the supply-side issues and may be more keen to ignore the political nature surrounding the MENA regions.

Storage is still reaching tank-tops and if this trend continues, we may see for the first time in 20 years - oil investments declining for two consecutive years and this may be an indication for future oil markets.. as they look to continue their downward spiral.

Optimists still seek a bottoming level - looking at Iran supplies for next year to help boost $60+ for 2017 (perhaps a fascinating new dynamic for the near future), however the fundamentalists outlook is further lower to find a strong re balance in the market.

Best of luck

Anish

Crude Oil - A Bargain Hunt?

Dear Traders

As we enter the final quarter in 2015, investors are watching the price of Crude Oil with an eagles eye.   Oil prices have been on a roller-coaster ride over the past few weeks, coming from 6-year lows and with talks of $30 per barrel (being the new normal) a few months ago, we have seen a remarkable comeback as the $50 mark was crossed for the first time since July.

It looks like more short-term players have seen this opportunity above $50 for greater profit-taking and more sizable positions seem to have taken the market back to $47 & if this price is not screaming for a "Pull-Back" before year-end.. I don't know what is!  However, more "conservative" fundamentalists focused on the over-supplied commodity are ignoring the price action and looking at more longer-term consolidations up to year-end & maybe till future rate-hikes - the recent drop in oil-rig counts did not help either! 

Idea

OPEC remain firm that demand should begin to increase in early 2016 and this should naturally reduce the worried over-supply figures, resulting in a more "balanced" market - which if true, should see investors price in a more bullish price action heading up to year-end.  However, warnings persist from the International Energy Agency insisting over-supply is set to stay. Although this view did not stop the Chinese "Bargain Hunters" from buying up more of the market last month.

With Russia now heavily involved in Syria and also stamping its foothold around the Middle-East's perimeter, the geo-political dynamics of the Oil Markets have a new found tension from the prospect of a potential stand-off between the US & Russia, as Russia looks at prioritizing it's hand in the Middle-Eastern Crude supply.

Recent ISIS attacks on production facilities in Norther Iraq have also added to this dynamic and of course, oil nations and businesses are keeping this in mind when attempting to analyse their quarter-end plans.

Overall, it is important to note that there is still an oversupply (surplus of around 1 million barrels per day). However, the "rebalance" force should help calm this supply over the next 12 months, where a turn upwards of $70-75 would really indicate a rebalanced market.

Trade OIL with Atom8

Atom8 are now proud to announce the launch of USOIL as a new CFD on their leading MT4 terminal. Spreads start from 1 pip and if you would like to test the core pricing, please email info@atom8.com

Best of luck with your trading

Anish 

FX & Precious Metals, Atom8 Financial Services LLP

2nd Floor, Centenary House, Palliser Road, London W14 9EQ, UK

T: +44(0)20 3405 3910 | M: +44 (0)7983701816 | anish.lal@atom8.com | www.atom8.com

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