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Alexander Khurshudov on the oil prices movements: there is no active rise without a big fall

Alexander Khurshudov, expert Oil and Gas Information Agency
March 13, 2017/ 09:14

Moscow, 10.03.2017. The oil prices resumed the negative dynamics during the second half of trading on Friday, 10th March. A barrel of North Sea oil dropped to $51.18, a barrel of light Texas oil went down in value to $48.37. These are the lowest indicators of the commodity market since last December, when the agreement between the oil exporting countries made the oil price go up.

Alexander Khurshudov, the Oil and Gas Information Agency expert, comments on the news:

I’ve been expecting this move for a long time. After the oil market spent two months in a lazy sideways trend it became clear that it wouldn’t grow without a powerful piece of news. No such news turned up, on the contrary, oil consumption is decreasing gradually now that spring has come, drilling of the shale deposits is increasing, even if not too rapidly, but still. So, some decline in the prices seemed almost inevitable to me.     

For the prices movements at the stock exchange indicate the COLLECTIVE JUDGEMENT of the traders. It may be wrong or wright, but a certain point of view must prevail. Otherwise there is no up or down movement. The sideways trend shows that the opinions have divided; this state is unstable and won’t last long. Let’s look at the Brent price weekly chart (see the picture). 

In December-January the quotes were close to the top of the trend channel, but couldn’t reach above it. Its growing capacity exhausted and the majority of the players chose to lock in profits. Although last week’ fall was too big. Now the most likely scenario is a jump back to the level of $54, and in April there will be attempts to push the price below $49-50. They are unlikely to succeed; with this oil price there will be lot of purchases and I expect a more powerful increase to the level of $60 in May.

It’s not without reason that traders say there is no active rise without a big fall.  This is because when prices change direction the players have to buy back the previously sold futures; this stimulates price increase not less than usual bullish deals.  

Meanwhile the US commercial oil stocks grew by 8.2 mln barrels and reached 528.4 mln barrels last week. The stocks of petroleum products decreased by about the same value: motor gasoline by 6.6 mln barrels, diesel by 2.7 mln barrels. This is a usual thing: a part of refinery equipment is stopped for maintenance. Oil import is continuing to grow: in February it reached its five year maximum (9.37 mln bpd), now it has reduced by 1.2 mln barrels.    

The number of active drilling rigs in the US grew by 12 during the week.  151 rigs are drilling for gas, 617 for oil, exactly half of them (309) are working in the Permian Basin oilfields. According to the recent reports, the oil production is continuing to grow; during the week it increased by 56 thousand bpd and amounted to 9.088 mln bpd. We’ll be able to watch this growth for another 3-4 months and then feasible changes will start to happen at the oil market.    

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