While the recent rapid rise in crude oil prices has led some to forecast $60 oil, I think it is more like Déjà vu all over again. I think over the next several months the oil market will act more like the movie “Groundhog Day” where the star, and now the oil market, is caught in a time loop.
In late May 23, sweet crude oil futures on the Chicago Mercantile Exchange traded at about $48 per barrel. On Friday August 19, crude oil futures closed at $48.52. In between, there has been an OPEC meeting in June and talk of a meeting in Algeria next month to freeze production and crude has traded over $51 and under $40.
OPEC has expanded its membership to 14 with the recent addition of Indonesia and Gabon. With the Energy Information Administration reporting U.S. exports hit a record 662,000 barrels per day in May 2016, perhaps the U.S. should apply for number 15. However the high level of exports is symptomatic of a world oversupplied with oil and that continues to be the case.
The actions of oil producers speak far louder than words. Saudi Arabia is producing record amounts of oil and Iraq just announced that it will boost exports by resuming flows form Kirkuk. Now that Iran has increased production to near pre sanction levels, they may well be inclined to agree to a production freeze. But what good is a freeze if the target level is set equal to the maximum production levels of all the participants?