While benchmark crude futures on both sides of the Atlantic were poised for their first weekly gain this year, analysts cautioned the price rally was unsustainable given soaring inventories amid persistent overproduction.
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OPEC, the organisation representing oil producing nations such as Saudi Arabia, Qatar, the United Arab Emirates is desperately pumping out oil at a loss in a bid to drive high cost producers out of business. About 17,000 oil and gas workers in the USA lost their jobs in 2015, but if you include oilfield support jobs the number is about 87,000, according to Michael Plante, an economist at the Dallas Fed who has written about the effect of oil prices on the economy. Iran’s imminent return to the oil export market is also expected to deepen the global glut by adding roughly 500,000 barrels a day.
In a joint statement, the European Union (EU) foreign policy chief Federica Mogherini said “As Iran has fulfilled its commitments, today, multilateral and national economic and financial sanctions related to Iran’s nuclear program are lifted in accordance with the JCPOA”. MABUX believes toward the end of the 2016.
Every major oil producer in the world is now concerned with the price of this commodity, since it makes production unfeasible in certain areas where the cost of extraction is greater than the market price.
WTI is now down more than 20 percent from its value from the start of 2016 after dropping by 30 percent past year. Its stock started the day at $35.54 a share. Saudi Arabia is severely pinched by the Iran and European Union deal, which will likely restraint its production to some extent. Fadel Gheit, an analyst at Oppenheimer & Co, says as many as half of the independent drilling companies working in USA shale fields could go bankrupt before oil prices stabilize.
To be sure, overreaction in oil markets tends to be the norm rather than the exception, and the view that oil is now far oversold does not mean that a recovery is imminent. In addition, decline in oil prices has also forced the country to cut its spending.
Estimates by IEA for demand for oil were cut back on the back of weakening Chinese economy.
Where oil prices are daunting the economic growth in developed countries, underdeveloped nations face significant benefits of cheap oil.
If oil prices reach $10-15 per barrel mark in the future, it might bring a global rout in the markets.
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“Petroleum markets are showing signs of stabilising after the recent run of weakness, and we see some scope for a technical correction, particularly if global equity markets are able to recover their recently misplaced confidence”, said Tim Evans of Citi Futures.
