Although hedge funds such as Goldman Sachs are warning against thinking that commodities including oil are facing a long-term rally, there are several signs that oil prices may have already hit bottom.
News of a looming oil deal among OPEC countries may have helped oil prices begin a stable, nearly month-long rally on February 12. Days earlier, Igor Sechin, head of Rosneft, Russia's biggest oil company, said it would be open to the idea of an output cut and OPEC's Venezuela made the first concrete proposal the following day.
Unlike OPEC countries, Russia's oil producers are predominantly private companies responsible to shareholders, although some, such as Rosneft, also have a significant share of government control. The new deal, however, may lead to a rebalance of OPEC influence by including Russia and Mexico, both of which held negotiations, while members such as Venezuela, which has the world's largest oil reserves, could lose standing.
At the same time, Russian oil companies are starting to diversify internationally, with Lukoil looking into Iranian assets while Rosneft begins drilling off the coast of Vietnam to regain positions potentially lost as a result of US sanctions.
2. Shale Crash
Despite a rise in prices over the past few weeks, US shale oil companies announced that they would cut output as a result of major losses.
Companies such as Chevron and ConocoPhillips may actually compete against shale oil companies as they cut investments in deepwater oil extraction, giving domestic shale producers more opportunities to cut losses and liquidate their assets.
In the long term, however, the effect may be temporary, as the lifting of the US oil export ban could lead major US companies to increase exports.
Despite fears regarding China's economy and predictions of an economic "perfect storm," the fears did not materialize. As a result, volatility unseen since the 2008-2009 financial crisis began to fall, allowing oil prices to regain stability and head higher.
China's troubles still prevail, but disruptions in the country's stock market proved to not significantly impact economic fundamentals, in an economy which still suffers more from overinvestment as a result of government planning than from problems raising capital.
4. Iranian supplies
While Iran was ready to ship oil as soon as sanctions were lifted, with long-term supplies stored in tankers, the introduction of Iranian oil did not greatly impact the European oil market, as the country shipped less than a third of the oil it promised to export.
Low oil prices may have also been behind Iran's less-than-spectacular results when it came to raising capital for new oil production, which the country plans to grow to pre-sanctions highs.
5. US Inventories May No Longer Matter
Although the oil glut prevails, in the United States, oil prices have continued steadily rising even after announcements that US inventories grew nearly three times more than expected. The country's oil producers have actually begun eyeing oil exports to Europe, which faces supply disruptions as a result of an accident in Nigeria and financial trouble among offshore North Sea oil operations.
At the same time, major oil companies are increasingly wary of long-term investments which could be subject to future volatility.
The situation suggests that Saudi Arabia's alleged strategy of forcing out high-cost operations for both shale and offshore projects may have actually worked, and while the US would face beneficial export conditions while the glut is ongoing, consolidation and liquidation in the shale sector could bring back the pre-shale world while scaring off investors from higher-cost projects.
