In accordance with the revised Saudi projections, the currently lingering overcapacity on the supply side will erode with significant oil inventories accumulated in the US and mainland China being absorbed by the solidified demand. The glut might be over, with longer term upward effects to prices to follow, unless major disruptive events unravel in the global economy.
In April, US road commutes rose by 2.6 per cent year-on-year, according to the US Department of Transportation data, due to the higher fuel affordability. Given that April is on the eve of the summer travel season, road travel figures are bound to go up further down the road, pushing petrol prices further up, extending their April gains, and likely propelling overall US inflation closer to the Federal Reserve's 2 per cent target.
Subsequently, an anticipated pickup in the US economic activity would likely push overall fuel demand higher, draining crude inventories in North America, which, coupled with the decline in the US oilrig count and more downward pressure on the supply side overseas, is likely to provide crude prices with a more substantial footing.
Meanwhile, overseas factors to the oil market situation have also suggested a steady pickup on the demand side, with supply being balanced out by disinvestment, occasional declines in output and rising demand from oil refineries, highlighted by a rise in petrochemical industry. The recently-appointed Oil Minister of Saudi Arabia, Khalid Al-Falih, suggested the oversupply period dominating the market for roughly the past two years is likely over.
Speaking in Houston, TX, Al-Falih said the oil prices are likely to increase steadily amid the current combination of factors on both the demand and supply side.
"The oversupply has disappeared. We just have to carry the overhang of inventory for a while until the system works it out… We just have to wait for the second half of the year and next year to see how that works out.," he said as quoted by the Houston Chronicle.
According to several forecasts, US oil prices might advance top as high as $70-80/bbl by late 2017 as anticipations for a quicker economic growth in the US are dominating market sentiment despite a rife recession speculation.
However, should the prices go up robustly, US small-caps drillers would be more inclined to recommission their oilrigs, weighing on the prices, yet, the depressing effects of the current disinvestment in the energy sector would hinder such developments for a while. That said, there'll likely be a window of higher oil prices open until they settle below $70/bbl in the medium-term. Energy sector volatility will entail as spikes in prices would render market participants nervous.
All that said, not all is murky for the crude market, however, that is mainly due to the effects of rife disinvestment in the industry both in the US and overseas. The international oil cartel, OPEC, has proven to have all but lost its price-setting power, with developments in the international market being driven by the demand-supply correlation.
Oil market might becoming choppy in the medium-term in case the combination of disinvestment from production and declining oil inventories would stir a more of an "off-the-rig to the market" situation, yet, the overall trend is still upward.
