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Oil prices dropped by 10% last week, with the news of the North American production being stronger than expected. This news triggered the oil market’s price volatility.
The volatility of the international oil markets fell from September 2016 to January 2017. The expected output cuts from OPEC countries including Russia caused the expectancy of crude supply to diminish.
Future outlook of higher prices, higher demand and the world economy recovering from a period of hebetudinous growth moved the price of crude above $50 per barrel and levelled the market’s contago structure.
According to existing fields and future studies, the US is on the rise as the world’s top oil producing country. The expectations of an ascending revision of output are about an increase of 300,000 barrels per day for 2017, followed by a further increase of 500,000 barrels per day in 2018.
In addition, the US has become the producer of the marginal barrel of oil but does not have the capacity to set the price of crude by determining world supply given current demand; like Saudi Arabia dominating the mid-20th century petroleum market.
So; who leads the oil market now?
Saudi Arabia is still strong-willed enough to protect the OPEC agreement, if not, extend it, in prospect of Aramco’s initial public offering even though the US is limiting OPEC’s price-setting capacity.
The demand for the oil is not expected to crest before the mid-2020s and the late 2030s according to the International Energy Agency.
Thus, it encourages the international oil market to move towards a less inhibited structure of supply determination, resulting in a small-scale price volatility rather than wild swings.
