Here are five key factors to watch as oil prices approach $50 per barrel:
1) Saudi Arabia’s output could tilt the market. The kingdom’s production has been steady ever since it was raised to a record 10.6 million barrels per day (bpd) last June. However, there is spare capacity to ramp up production and energy minister Khalid Al-Falih said that his recent appointment would make no difference to the country’s aggressive oil policy.
Production usually increases during the summer months in an effort to meet higher demand. The kingdom’s stance on maintaining high production levels or scaling back is not likely to be clear until later this year.
2) Disruptions in supply among OPEC members have eased the global supply glut over the past few weeks, which offered more support to oil prices. Nigeria, Africa’s largest oil producer, has seen its output fall to less than 1.4 million bpd after militants attacked facilities and pipelines.
A wildfire in Canada’s oil sands region has cut the country’s production by 1 million bpd. US output has gradually declined by over 500,000 bpd since early 2015, while China saw its lowest production level since August 2012 in April.
“The physical rebalancing of the oil market has finally started,” Goldman Sachs analysts said in a research note earlier this week. "We expect that the return of some of these outages as well as higher Iran and Iraq production will more than offset lingering issues in Nigeria and our higher demand forecast.”
3) Iran’s oil exports are forecast to jump 60 percent year-on-year to 2.1 million bpd in May, Reuters reported Wednesday, citing new data and industry experts. The Islamic Republic shipped 2.3 million bpd to international markets in April, beating the IEA’s estimate by nearly 15 percent.
4) U.S. shale production may potentially slow the oil price climb as producers find an incentive to keep operations going. Many producers who experienced financial strain over the last two years may look to ramp up production, or re-enter the market.
5) Hedge funds have heavily invested in oil since it hit $30 per barrel in January. As prices continue to rise, profit-taking could lead to a massive sell-off, or instead prompt other funds to buy in.
In a recent report, analysts at Morgan Stanley attributed oil's recent gains to buying activity from funds and investors afraid of missing out. In a separate report, Barclays said it was "not yet convinced that prices will remain here or go even higher".
Write to Matthew Watson at matthew.w@argaamplus.com
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