Oil price: Prospects of falling prices skyrocket

  • And
  • +A

In the first half of trading on Thursday oil prices were moving in a northerly direction, but were unable to build on the success and systematically rolled back to their original positions around $ 63 per barrel Brent. In the morning session on Friday, the futures are making new attempts of growth, which, however, seem unconvincing in terms of sluggish demand, the risk of conflicting signals in the industry.
The oil market, like all risky assets, was disappointed enough dovish tone of the ECB meeting, which did not reduce the rate, but made clear that it will happen in September. The rhetoric of Draghi at the press conference seemed to investors is not as soft as expected, to suppress the demand for risk. But Central Banks can still support the oil market, on Wednesday, the fed will cut rates for first time in over 10 years, which will please investors.
Higher prices also prevent signs of increased supply. In particular, the state oil company of Saudi Arabia Saudi Aramco announced that it plans to complete the expansion of the pipeline East-West, by the beginning of September, which will allow to increase production in the Red sea. In addition, Saudi Arabia and Kuwait have agreed on the resumption of oil production in the neutral zone, where it can produce about 500 thousand barrels per day.
Thus, given the disturbing signals from the supply side combined with continued fears of cooling demand and the unstable dynamics of the global stock markets in the short term, Brent will probably not be able to develop growth momentum and will close the week without significant changes, close to level 63. A risk factor is the market statistics for the US GDP – if the figures come out better than expected, oil will fall in price against growth of dollar and decrease the probability of easing policy of the fed.
Gennady Nikolaev
Academy of management Finance and investment