According to Anthony Grisanti, CNBC, “there are two forces at work in the oil markets today creating a tug of war. On the one hand you have U.S. shale producers on a quest to reach 10 million barrels a day in production amid falling seasonal demand. On the other hand, you have the perception that the oil glut that has gripped the world over the last few years is coming to an end because of OPEC restraint and increased demand from improving economies.” These two forces have kept the crude trading in a tight range, between $47 and $54 per barrel.
Although OPEC has shown constraint and set the 2016 limit of 32.5 million barrels per day, increased shale production weighs on the market. Although less than in year’s past, there is still an oil oversupply present. Countries such as Libya, who was not part of the agreement, continues to produce more oil than it did a year ago, recently announcing its goal to reach 1.25 million barrels a day (double what it produces today).
But the seasonal factor will have the biggest influence on oil prices until the end of the year. Demand generally drops from October through mid-January as summer driving season ends and refineries enter turnaround stage (to get ready for next summer’s driving season). We will start to see supplies build because refineries aren’t using as much oil.
Although we see production on the rise and demand beginning to fall, it does not necessarily mean higher prices. Anthony Grisanti, CNBC, “can envision oil dropping as low as $45 by mid-January.”