The Curious Case of Oil, Why Won’t It Go Up?

October 16, 2017

The price action in oil has been curious over the past few weeks. For those that watch the market, you’ll have noticed somewhat less volatility recently than what we’ve seen this year. Weekly inventory numbers have has less of an immediate price impact and OPEC statements don’t really impact the market. It seems that we’ve reached a stalemate, and while this is at the upper-end of this years price range, the supply/demand equilibrium is balanced for the time being.

Why isn’t oil going up?

There’s a long list of reasons why oil should be going up, including:

But, according to Deloitte Services, a growing number of industry professionals don’t see that happening. In a recent survey of 250 U.S oil industry exec’s, two-thirds think that oil will remain below $60 a barrel in 2018, and that it won’t rise above $70 this decade. Worryingly, 60% think that the number of drilling rigs in the U.S will decline in 2017, and half said that capital spending will fall in 2018. Why is that worrying? They see the price of oil remaining low even with falling US rig counts.

To put it succinctly, the equilibrium between supply and demand is just about even right now, and if that’s the case then there’s no reason why prices would rise (or fall). Oil analysts point to the widening of the WTC and Brent spread as a sign of market manipulation or a change in dynamic, but this could just be an effect of the hurricanes in the US. There’s also the fact that Saudi Arabia are looking at IPO’ing Saudi Aramco, but there’s been some reports that they might shelve that one.

There’s no doubt that volatility will return to the oil market, but right now there’s just no reason for it to change.