Oil Production and the Fight for Market Share
It’s no secret that oil production has experienced a dynamic turn-around in recent years as witnessed by consumers at the gas pumps and also by investors and the largest oil-producing nations in the global economy. Countries that had limited resources allocated to oil production such as the US pursued and developed more economical methods for extracting oil that was previously not cost-effective. These new processes referred to as “fracking” quickly expanded to new areas where oil could be obtained from shale deposits putting thousands of individuals to work in the industry and reducing the need for foreign oil.
With the increased supply of crude oil from new sources and even movement into exporting, oil prices dropped rapidly to lows not witnessed in many years.
Other events such as striking workers in OPEC nation Kuwait have seriously curtailed production from that country, at least temporarily. On the flip side, the lifting of US sanctions against oil-rich Iran has opened up supplies from that country considerably. Saudi Arabia is left with a critical decision on whether to increase production to avoid loss of market share from countries like the US and Russia, or to decrease production to reduce supply in an attempt to increase prices globally.
Recent meetings of OPEC member representatives that were anticipated to generate an agreement to reduce production in an attempt to boost prices, failed to reach such an accord. Part of the reason for solid action was Saudi Arabia’s hesitation to make any move without a consensus from Iran, which was notably absent from the proceedings.
Oil Production Competition and Short-term Outlook
Reduced prices caused by a global surplus of oil have made fracking techniques less economically practical, resulting in declining investment in new exploration or production in that segment of the market. China’s lagging economy has also reduced their demand for oil imports due to a moderation in consumer sales and slowing manufacturing growth.
In the short term prices are forecasted to remain in the $35-40 range for the remainder of 2016 and quite possibly well into 2017. Energy markets overall will take a wait-and-see approach both for how global economic recovery proceeds, and also to evaluate the progress on alternative energy sources. Many shareholders of companies are expressing their desires for real progress toward reduced emissions and environmental stewardship on the part of the companies they invest in.
Investing in Oil Producers
With the current lull in oil prices and abundance of supply it requires vigilance and expert timing to benefit from jumps in prices that may not be long-lasting. Day traders need the advantage of real-time information and quick trade execution to turn profits from oil trading in this volatile market.
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