How long oil prices will be on the rise?

According to trading at the London Stock Exchange ICE, today the Brent oil price reached the level of $50 per barrel for the first time since the beginning of November 2015. The WTI crude is also becoming more expensive in trading in New York: the price of July futures is $49.88 a barrel after the release of data on the reduction of oil production and commercial reserves of fuel in the US.

According to American Petroleum Institute’s estimates published by Bloomberg, the fuel reserves decreased by 5.14 million barrels in the United States. Earlier, it was reported that they fell by 4.2 million barrels, or 0.8% to 537.1 million barrels. According to analysts’ forecast, they were reduced only by 2.45 million barrels to 538.85 million barrels. Distillate stocks fell by 1.3 million barrels, or 0.8% to 150.9 million barrels in comparison with the projection of 1,083 million barrels.

Goldman Sachs Bank published a forecast on May 16th according to which oil prices will rise to $50 a barrel because of the drop of production. Production decreased due to forest fires in Canada and terrorist attacks on oil pipelines in Nigeria. The increase in oil prices provides additional support for commodity markets.

The leading analyst at the National Energy Security Fund, the teacher of the Financial University under the Government of the Russian Federation Igor Yushkov stated that the main fundamental factor is not a supply and demand balance, but the monetary factor, i.e. how much now money are in the economy. 

"Because the cheaper you can receive a loan, the easier to buy something, including oil futures. It is a real exchange factor. Therefore, the main thing that we can expect is tomorrow's statement by the US Federal Reserve. If they raise the refinancing rate there will be less money in the economy than it would be not enough to buy futures. Therefore, we should wait for a serious downward correction. If the rate remains the same then a gradual rise in prices will continue, and eventually, after a few months the price may become close to $55 per barrel,’’ the expert said.

Senior analyst at Uralsib Capital, Alexey Kokin, drew attention to the fact that the decline in US stocks is not the private factor, but a  part of a larger trend that we can see during the last two months. 

"This reflects the decline in the US production, increase in recycling, growth in demand of oil products. This is not anything extraordinary. As for the cross-sectional factors that could reduce production and the supply on the world market, of course, they have the potential to shift the market to $2-3, but not more. Speaking about how the price reflects the current balance of supply and demand, it is a little bit ahead of the real situation on the market. That is why we can see a slight weakening. The price of $50 would reflect the supply and demand balance in the second half of this year. It may be due to some short-term factors,  so we can also expect the price of $48,’’ the expert said.

In addition, he noted the renewal of the active US shale oil production. "At some point, oil production in the US will stop falling. It is slowly and steadily declining during 11 weeks. Consequently, drilling activity also falls. But only statistics can show whether the production fall is over. If we suddenly see that the price oil remains at the level of $50, and the production has stopped falling it means that we did something wrong. But such a massive turn and return of oil to the market, new completion of wells, active drilling growth will occur when oil will be about $55-60," senior analyst at Uralsib Capital said.