Oil Monthly Forecast – August 2017

Oil prices continued their recovery during the month of July. This is something that we have been pointing out since June when the prices were below $44. At that point of time, when almost the whole market seemed to have given up on oil and everyone seemed to be selling, we had said that the bottom of the oil move was in and that the oil prices would now keep moving upwards as part of its recovery. If viewed from that aspect, it can be easily seen that the oil prices have indeed recovered with intermittent periods of correction, which is something that is always part of any kind of trend.

Oil Prices Recover Strongly

We had believed that the bottom was in due to the crisis in the Middle East. The crisis there pointed to 2 things. First was the fact that the tension there did not show any signs of subsiding and it seemed as though it would drag along on and on for quite some time. This was likely to affect the supply of oil as most of the OPEC countries are in the region. With that being the case, we felt that the change in supply would affect the inventory and hence help the oil prices to recover.

Also, the tension in the Middle East also pointed to something that was not palpable for everyone to see. It raised the possibility that the entire crisis could have been triggered due to the fact that the OPEC countries wanted to push the oil prices higher using this as a reason. We had mentioned this in a few of our forecasts as well. We felt that the Middle East could be using this as a tool and they could then control the tension in case the oil prices didnt move the way they wanted it to. It was good for them that the oil prices did in fact recover and respond to the tension in that region and pushed through $45 and then $47 during the month.

Oil Prices Helped by OPEC

And just when there seemed to be some slow down in the move up, the OPEC came up with some pleasant surprises for the oil bulls during their meeting towards the end of the month. They managed to convince Nigeria, which had been producing a lot of oil and thus negating the effects of the production cut deal, to join the others in cutting their oil production as well. This was a boost for the oil prices. We also saw Saudi Arabia agreeing to cut oil production even further and this pushed up the prices even more as we saw the oil prices move through $48 and then through $49 to end the month above this region. The inventory data from the US has also shown signs of the inventory drying up and this is also a big boost for the oil bulls out there as this means that they have managed to attain their double aim of controlling the production and inventory as well.

Oil Looks to Move Higher

Looking ahead to the coming month of August, we expect the oil prices to continue their recovery. The prices are likely to face a lot of resistance in the region between $50 and $52 and the selling needs to be absorbed by the bulls for the move up to continue in the medium term. We believe that $60 could be the target region for the oil producing countries and they are likely to do anything to get the prices there. The events over the past month have shown to the world that the oil producers are very serious about pushing up the prices and they have also sent out a message that they would do anything to achieve the same. The result of this extra bit of production cut from Saudi Arabia and Nigeria is likely to be seen in the coming month and if it does have the desired effect on the supply and inventory as well, then we should see the oil prices continue to move up in the short and medium term as well.