Where is the Future of Crude Oil?

May 9, 2016

On April 1, 2016, crude oil tumbled more than 4 percent on Friday, after a Saudi prince reportedly said the kingdom will not freeze output without Iran and other major producers doing so, and data showed the global crude glut was likely to grow. On the other hand, the dollar (.DXY) firmed after stronger-than-expected U.S. jobs data. A stronger dollar will absolutely affect the crude oil price, even drive it to go down further. Today’s crash has shown the weak confidence of investors. So where will the crude oil price would go in the future? I will share my idea about the crude oil price.

At the beginning, lets go over the 3 month crude oil price performance first. In the last three months, the oil spot price looks like on a roller coaster. It movement path is just like a “w”. At the beginning of this year, affected by the oversupply and Iran’s export announcement, Oil price tumbled from $37.07 to $26.55. Then after January 21, bullish news such as export cutting and weaker US dollar pushed oil price up to $33.74 on February 1st. Bearish news came after bullish one, and the US storage of oil reached a historical high and Iran announced supported to Russia publicly, which drove the price down again to the lowest point $26.06. The oil price hit the technical price again and then jumped up to $41.9 due to the possibility that OPEC oil export country agreed to reduce oil production. After March 22, good news didn’t appear as wished, then investors lost their confidence, and the oil price dropped to $36 again.

After going through the 3-month crude oil movement pattern, you see that two kinds of factors really influence oil price: one is the oil production and the other one is the US dollar. I will predict the oil price using these two factors.

For the first one. OPEC does not have control of the oil market. Because of Syrian Wars, Shiah stands to the opposite of Sunnite. Their discrepancy is one of the reasons of the glut of oil. However, after Russia withdraws troopsfrom Syrian, conflicts between Shiah and Sunnite will calm down, which will promote the proceeds of negotiation. On the other hand, according to the IMF, some main oil exporting countries are under fiscal crisis, such as Saudi Arabia and Russia. Therefore, their leaders would like to increase oil price to offset the fiscal deficit.

For US dollar, it will recover as predicted. If it is stronger than before, it would drop oil price down. However, the US central bank delayed the target of increasing interest rate, which will relieves the pressure of the downward trend of oil. On the other hand, a stronger dollar means that more oil companies in the US will go bankrupt, which is a good news for oil price.

According to the above analysis, in the future, oil price will boom again in the short term, but there are still some uncertain factors that may affect crude oil prices, Such as the Chinese economy and European economy.

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