There are several reasons for this dramatic 36% volatility. Surely the OPEC production cutbacks ranked very highly as a major contributing factor. Remember the power of OPEC is magnified, at least now, as non-OPEC countries support the cuts, most notable Russia. We would have mentioned Venezuela among those non-OPEC associates, but Venezuela is on the ropes. She cannot produce enough oil for her own domestic needs let alone satisfying commitments to its overseas clients. We also had some devastation from Mother Nature aka Harvey and Irma, in the Gulf Coast and severe damage to transport pipelines in The North Sea and Libya. 2018 is still going to see large movements in the oil price because, despite OPEC actions to reduce supplies, there is still a huge overhang in inventory worldwide of crude. This means that relatively small events, say a demand slowdown in a major consuming nation, like China or Japan, or some aggressive oil exporting on the part of US suppliers will have outsized effects on price.
As traders, where are the opportunities? The most obvious is Royal Dutch Shell (NYSE:RDSa). Included in the signals today and likely to appear in the future too, RDS sold around $32 billion of exploration assets this year in its attempt to focus on “downstream” products, in other words products that are not related to drilling activities. This decision started to appear in many of the oil majors where there are those that are foregoing the oil fields and their development for developing their refining or petrochemical assets. In distinction to major actors like Saudi Aramco who are redoubling their efforts in their fields, “upstream” products. Whether these downstream products will produce the kinds of profits we are used to from oil majors when crude price rises is not known. What surely is known is the rise in RDSa. The US oil industry has begun exporting in a serious way. Venezuela has completely dried up as a supplier. Electric cars are lowering demand for crude, which is used almost entirely as a transportation fuel. It’s going to be a wild ride in the oil patch in 2018. Keep your eyes on the road and two hands on the steering wheel.
Major Oil Market Events in 2017 and What's In Store for 2018
Andamento del mercato - 27/12/2017