OIL PRICE VOLATILITY - DEPENDENCY ON WORLD CONFLICTS

Current price drop below $40 is going to continue in the short future although there is a lot of divergent opinion about the market trend. On one side, high global crude stocks combined with high product inventories, in addition to lesser disruptions. On the other side, expectations that non-OPEC production is going to continue to drop which would create a form of balance.

We believe that fundamentals will tighten next year primarily triggered by a lack of investment in the oil industry across the globe, but we are not sure if we will see a $50/Bbl. rebound as we exit summer as predicted by some economists.

Prices are being seriously influenced by very volatile situations in Libya and Nigeria.

Libyan production has been moving around 350,000 barrels per day so far this year, expectations for rising production are facing major political disruption: US planes bombing ISIS militants, and even the country’s two national oil companies taking about merging. What will be the real output, it is impossible to predict?

Nigerian crude production and exports is also facing major challenges. After military actions against oil pipelines and facilities earlier in the year, hopes have been intermittently come back in recent months and weeks with end of force majeure for some of Major producer Shell, Chevron, etc. The Government is holding discussion for an end to violence with the Delta Avengers Militants and in recent days, Nigeria has resumed payments to former militants in an effort to avoid further attacks. The government is trying to engage militants in a ceasefire after agreeing to pay 65,000 naira (or $206) per month to each of 30,000 ex-militants in the Niger Delta, who are now subsequently paid to oversee security in the region.

There is still a lot of skepticism around the ceasefire and force majeure is back in place for two key crude streams – Exxon in Qua Iboe and Shell in Forcados. Combination of all these elements is challenging when it comes to predict a realistic price for Oil in the weeks to come.