Oil Monthly Forecast – July 2017

Oil had a mixed month during June as it did not find much support from the OPEC members who left it to the mercy of the production and the inventory data and this hit the oil prices hard during the major part of the month, though the prices did recover towards the close of the month. The OPEC members did not announce any specific deals or anything fundamental in terms of supply to support the oil prices and this was a disappointment for the oil bulls who were expecting some decent help from the OPEC as higher oil prices are likely to help their economy as well.

Oil Dependent on Data

With the OPEC giving up support to the oil prices, the prices swung this way and that during the course of the month. Towards the middle of the month, we saw the prices fall hard on the back of strong production and inventory data. The production data showed that the production from Libya was much stronger than expected and this pushed the oil prices through $45 and then for a couple of weeks, the oil inventory data from the US showed a clear build up in the inventory when a draw was expected and this added to the pressure on the oil prices.

These events caused a large fall in the oil prices which crashed through $45 and reached as low as the $42 region and for some time, it looked as though the oil bulls were done and dusted and that the oil prices could fall into record lows. But towards the end of the month, things began to change globally and the oil prices began to gain some support from unexpected quarters as the crisis in the Middle East burst through. We had Saudi Arabia and its partners launch a blockade on Qatar accusing it of supporting terrorism and this led to a huge crisis in the Middle East with the different countries taking different sides.

Oil Prices Boosted by Crisis

This crisis has been ongoing for the past couple of weeks and so far, there has been no sign of any let up on either side and it looks like the tension will only escalate in the coming days and weeks. This has led to concerns that this is likely to affect the oil supply from the region. This has not happened so far but still the fear and the uncertainty is enough for the demand to increase and the supply side to get nervous. We are also seeing the tapering off of the inventory during the course of the last 2 weeks and this has also helped to support the oil prices in the short term. We expect the oil prices to continue to be well bid in the short and medium term and any escalation in the tension from that region is likely to push the oil prices through $50. We believe that many countries in that region would like to see the oil prices hover around $60 in the medium term and this escalation of the tension would be quite useful in achieving that.

Looking ahead to the coming month, we believe that the low of the oil prices is already in. The reason for us to believe this is the fact that the countries involved in the Middle East conflict would like higher oil prices and hence could use the conflict as a tool to pushing the oil prices higher. The OPEC members have made some bullish statements and have done their bit in pushing the oil prices higher but seeing that these have had minimal effect so far, they could probably be using this tension as an opportunity to affect the supply side and push the oil prices higher.

Oil Prices to be Well Bid

We believe that any correction in the oil prices in the short term should be viewed as an opportunity to buy the oil contracts for higher prices in the short and medium term with a stop loss below the range lows. It is also better to keep an eye on the oil inventory data to ensure that the non-OPEC members do not do anything substantial and try and reverse the oil prices by building up a lot of inventory. As you can see, the oil prices have a lot of geopolitical games associated with it and thats what makes it a bit tricky to trade.