Where is the future of crude oil?

August 29, 2016

Where is the future of crude oil?

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. Stronger dollar will absolutely affect the crude oil price even drive it go down further. Today’s crash has shown that the weak confidence of investors. So where the crude oil price would go in the future? I will share idea about crude oil price.

At the beginning, let go over the 3 month crude oil price performance first. In this three month, oil 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 always came after bullish one, the US storage of oil reached the historical point and Iran announced supported on Russian 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, the oil price drops to $36 again.

After we going through the 3-month crude oil movement pattern. Two kinds of factors really influent oil price. The 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 is out of control of the oil market. Because of Syrian Wars, Shiah stands to the opposite of Sunnite. Their discrepancy is one of the reason of glut of oil. However, after Russian withdrawing droop from 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 export countries is 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 recovers as predicted. If it is stronger than before, it would drop oil price down. However, the US central bank delays the target of increasing interest rate, which will relives the pressure of 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 above analysis, in the future, oil price would boom again in short time. But there are still some uncertain factors may affect crude oil price, Such as Chinese economy and European economy.

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