This year we have already seen oil prices dropping below $30/b down to $28/b and then recovering above $30/b. Even though some experts assure us that we are not going to see another major price crop in the near future. However, others say that the price are not planning to rally to new local highs either.
For those of you who don't remember, a new bearish cycle started right after the latest OPEC summit, which ended up with a decision to avoid any production cuts and delay the decision till the next summit planed for mid 2016. Before the summit, the price was around $45/b. After that the prices started crashing ago. Later on, the USA added fuel to the fire when the U.S. Congress canceled the oil embargo imposed over 4 decades ago.
The trading year of 2016 started with a perfect storm. The devaluation of the Chinese Yuan coupled with a stock market crash in China provoked rumors and panic regarding the economic situation in China, which is the biggest importer and consumer of crude oil as well as the world’s second-largest economy. On top of that, Iran was free of Western sanctions, which only aggravated the situation and made the bears eve stronger. The market started going down to new multi-year lows.
Citigroup and Goldman Sachs warned about prices below $30/b back in the fall of 2015. The reasoning is this: the price may be brought down in order to make some oil producers go out of business and eliminate the excessive supply. Morgan Stanley was also on the list of those who expected oil prices around $30-$25 per barrel. The panning has been building up. Standard Chartered has recently predicted a move down below $20/b, maybe even all the way down to $10/b.
Still, there are analysts predicting some recovery around late 2016 – early 2017. The bullish scenario looks less likely than the bearish one. Even if this is a recovery move, this isn’t going to be a major one. All in all, no analyst now dares give precise prediction under such uncertainty even though the bias is clearly bearish for now. However, traders have already priced most of the pessimism into the market, which means that the market isn’t as sensitive to bad news as it used to be. At the same time, it is trying to react to good news as well.
