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    Oil: “premature” weakening

    It’s been a while since I made my forecasts on oil. My last post regarding Brent oil quotes was published in April. Back then, I expected the average price for this mix to be around $ 58-59 per barrel in 2015. At the same time I thought that summer would be the most favorable time for the black gold, which would be supported by the traditional increase in demand for gasoline in the United States during summer holidays and might even temporarily break above $ 65 per barrel.

    However, my scenario seems to have come true ahead of schedule. In May Brent managed to approach the level of $ 70 per barrel, and then in June and July the quotes began to gradually fall slipping in the area of ​​$ 55 in the end. WTI oil went below $ 50 per barrel.

    The reason for such early weakness was not only the Iran nuclear deal, which entails a return of the top 5 major oil producer to the world market. Iran will be able to provide significant volumes of oil only by the end of the year. Oil fall this summer is also explained by the fact that the available supply exceeds even the peak demand.

    Consider this. Capacity utilization of American refineries last week reached the highest level of 95.5% in 2005. Clearly, it doesn’t indicate any lack of demand. On the other hand, commercial stocks rose by 2.5 mln. barrels – up to 463.9 mln., which is not that far from the eighty year high of 490.9 million, registered in April (see the Chart). What is the reason? The fact is that even on the back of low prices shale oil production in the US remains at close to the highest levels in decades.

    EIA27-7-15

    Meanwhile, in a month and a half the season of increased oil demand will be over. The US refineries will begin a traditional period of maintenance, and factories will sharply cut down their hydrocarbons purchases. The excess of supply over demand will become even more pronounced, pushing oil futures further down. An additional negative factor could be the US dollar’s strengthening on expectations of Fed’s rate hike. In such circumstances, WTI crude oil could fall as low as $ 40, and Brent to $ 50 per barrel.

    As for the average Brent crude oil prices in 2015, I’ll leave my forecast for $ 58-59 per barrel unchanged.

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!

    It’s been a while since I made my forecasts on oil. My last post regarding Brent oil quotes was published in April. Back then, I expected the average price for this mix to be around $ 58-59 per barrel in 2015. At the same time I thought that summer would be the most favorable time for the black gold, which would be supported by the traditional increase in demand for gasoline in the United States during summer holidays and might even temporarily break above $ 65 per barrel.

    However, my scenario seems to have come true ahead of schedule. In May Brent managed to approach the level of $ 70 per barrel, and then in June and July the quotes began to gradually fall slipping in the area of ​​$ 55 in the end. WTI oil went below $ 50 per barrel.

    The reason for such early weakness was not only the Iran nuclear deal, which entails a return of the top 5 major oil producer to the world market. Iran will be able to provide significant volumes of oil only by the end of the year. Oil fall this summer is also explained by the fact that the available supply exceeds even the peak demand.

    Consider this. Capacity utilization of American refineries last week reached the highest level of 95.5% in 2005. Clearly, it doesn’t indicate any lack of demand. On the other hand, commercial stocks rose by 2.5 mln. barrels – up to 463.9 mln., which is not that far from the eighty year high of 490.9 million, registered in April (see the Chart). What is the reason? The fact is that even on the back of low prices shale oil production in the US remains at close to the highest levels in decades.

    EIA27-7-15

    Meanwhile, in a month and a half the season of increased oil demand will be over. The US refineries will begin a traditional period of maintenance, and factories will sharply cut down their hydrocarbons purchases. The excess of supply over demand will become even more pronounced, pushing oil futures further down. An additional negative factor could be the US dollar’s strengthening on expectations of Fed’s rate hike. In such circumstances, WTI crude oil could fall as low as $ 40, and Brent to $ 50 per barrel.

    As for the average Brent crude oil prices in 2015, I’ll leave my forecast for $ 58-59 per barrel unchanged.

     

    Dear traders, please post your comments to our forecasts and share your own opinion. Your ideas can be very helpful for the newcomers in the forex market. Thank you!


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