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February 20, 2017

Current crude oil price outlook

According to the energy industry economists, financial advisors and business leaders, the price of oil should increase. However, till now it is not happening. Oil market watchers were  betting  in  beginning of  February  2017  that price   of oil  would  rise  as OPEC  with  other  oil  producing  countries   pledged  for  cut  in  production. Although, almost 78%  investors were  taking  bullish  position on crude oil which  resulted  into  price  rise by  around 20% .

In short time span, there is considerable rise with crude oil price rising as it stays above 50 USD/barrel level from December 2016. Energy industry insiders are expecting better price trend in year 2017 and even for the first time in December 2016 oil industry in Texas showed signs of stopping of economic contraction.

Just    few  week  ago  OPEC   and  its  allies  started  to   implement  their  cuts. However, observing at the market expectation if  OPEC  complies   with  pledged  cuts  we  may  see   oil  price  increasing   again  due  to  lack  of supply. But, it is not perfect expectation and there are lot more factors coming into play.  If crude oil price rise is not as per expectation, traders may  have  to bear  a  heavy  cost  to  hold   on  to  oil  contracts  from  this  month  to  another  one. Therefore, it leads to reducing  the  profits of  those  investors who  are  betting  on  oil  market .

After analyzing the oil price trend for last two months, there was initial increment followed by stagnation of crude oil prices between   54-57 USD /barrel level. This is certainly a bad news for energy industry and energy industry investors.    However, current scenario   suggests  that   over  supply  will  remain   for  some  more  time  resulting   into  depressed oil  price  which is also   OPEC’s  main  fear   i.e. they  have   made  the  cut  in  production but  inventories   of crude  oil   keeps on  increasing  and crude oil price remains depressed.

If you go through the oil price trend since June 2014, there is gradual decline in the oil price. From June  2014 level of above 100 $/bbl  to February  2016 level of around 27 $/bbl, there is a decline of    almost 73%. And if you compare it with current level, then there are definitely some signs of recovery.  As now we entered year 2017, various other industry economic indicators such as drilling rig counts and drilling permits issued   has also increased.  We strongly feel that the recovery has started but road to recovery will not be smooth and easy.

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