With each passing year, oil
seems to play an even greater role in the global economy. I stated in my speech
in International LNG Summit Organised by InfralineEnergy, “ The Crude price
will bump to some extent in nearly end of March and will continue to slip
between USD $ 40 -50 per Barrel. It is a sign of positive sentiments for this
sector; It is upto the players how they will maintain cool in Oil market
getting hot again; Mostly it depends on two type of future traders – Hedgers
and Speculators; An example of a hedger would be an airline buying oil futures
to guard against potential rising prices. An example of a speculator would be
someone who is just guessing the price direction and has no intention of
actually buying the product.
Unlike most products, oil
prices are not determined entirely by supply, demand and market sentiment
toward the physical product. Rather, supply, demand and sentiment toward oil
futures contracts, which are traded heavily by speculators, play a dominant
role in price determination. Cyclical trends in the commodities market may also
play a role. Regardless of how the price is ultimately determined, based on its
use in fuels and countless consumer goods, it appears that oil will continue to
be in high demand for the foreseeable future.
The big question is what oil
prices will do in 2015-16. Oil prices are unsustainably low right now – many
high-cost oil producers and oil-producing regions are currently operating in
the red. That may work in the short-term, but over the medium and long-term,
companies will be forced out of the market, precipitating a price rise. The big
question is when they will rise, and by how much. So, what does that mean for oil
prices in 2016? It is anybody’s guess, but here are the top five variables that
will determine the trajectory of oil prices over the next 12 months, in no
particular order.
Variable 01: China signed the
world biggest Oil/Gas Deal in the past three years; China’s Economy is one of
the variable . China is the second largest consumer of oil in the world and
surpassed the United States as the largest importer of liquid fuels in late
2013, whereas United States planned to cut imports. More importantly for oil prices,
China is expected burn through 3 million more barrels per day in 2020 compared
to 2012; But China’s Economy is in suspicion, so the Oil market is.
Variable 02: American shale
gas invention and production. Till end of 2014, the U.S. was producing more
than 9 million barrels of oil per day, almost double of the production from
2007. That stock send oil prices to the dumps in 2014 and it is still under
construction. Self goal by United States has put US Oil market in danger. Rig
counts continue to fall, spending is being slashed, but output has so far been
stable. Whether the industry can maintain output given today’s prices or
production begins to fall will have an enormous impact on international
supplies, and as a result, prices. And, many other factors, which involves,
United States game plan change in Arab;
Variable 03: The significant
role of Elasticity of Demand. The cure for low prices is low prices. Which is
supposed to create more buyers, but market has not seen such trend, only few
iregulated buyers nad Government are the players; Low prices could spark higher
demand, which in turn could send oil prices back up has not given that much of
enthusiasm in the market; But although, it has played a big role in price
fixation;
Variable 04: OPEC is clear cut
a game changer, but it all depends on its action and its direction. OPEC
deserves a lot of credit (or blame) for the remarkable downturn in oil prices
last year but as we see only OPEC not to be blamed but OPEC may turn correction
in pricing of oil in weeks that has not been done. For now OPEC – or, more
accurately, Saudi Arabia – has stood firm in its insistence not to cut
production quotas. Whether that remains true through 2015 is up in the air.
There is nothing to blame Saudi Arabia, when it comes to OPEC;
Variable 05: Geopolitical events
and accidents. United States cut down investment in Arab oil sector was an
accident, and lifting ban from Iran was an event; But, overall result goes to
ZERO because both the accident and event will take time to determine the Oil
& Gas Market. In the not too distant past, a small supply disruption would
send oil prices skyward. In early 2014, for example, violence in Libya blocked
oil exports, contributing to a rise in oil prices. In Iraq, ISIS overran parts
of the country and oil prices shot up on fears of supply outages. But since
then, geopolitical flashpoints have had much less of an effect on the price of
crude. During the last few weeks of 2015, violence flared up again in Libya.
But after a brief increase in prices, the markets shrugged off the event.
Nevertheless, history has demonstrated time and again that geopolitical crises
are some of the most powerful short-term movers of oil prices. Geopolitics has
not that big role to play in market but considered in Oil & Gas it has
played big role;
If you want a love message to
be heard, it has got to be sent out. To keep a lamp burning, we have to keep
putting oil in it.
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