Oil: Exciting Politics

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Oil: Exciting Politics
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Oil prices take a breather from the soaring rebound as enthusiasm grows for the upcoming gathering of oil nations. Although oil policy generates some uncertainty in the short term, market fundamentals suggest greater strength as demand grows with the recovery and the probable rebound in leisure and travel activity. The oil cycle is well advanced, but we see oil prices temporarily rising above US $ 70 by mid-year, said Norbert Rücker, Next Generation director of economics and research at Julius Baer.

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Oil prices took a breather after the vertiginous rebound in recent days and returned to the range of between $ 60 and $ 65 a barrel. The supply agreement of the oil nations and their restrictions on exports by key producers has been an important factor in driving the rebalancing and normalization of the oil market, this, together with the pause of drilling of the shale business in the United States. States and the rapid recovery in demand. As the monthly meeting of the oil nations approaches later this week, the oil market gets a bit excited and the usual policy guessing attempts get more attention. The question is not “if”, but rather “to what extent” oil nations will ease supply restrictions. Saudi Arabia’s stance is focused, given its more cautious assessment so far and that its voluntary cut earlier this year will eventually need to be undone.

The Oil Policy: A Source Of Uncertainty

For Julius Baer’s Norbert Rücker, the pressure to act is there. Some emerging markets are starting to feel prices spike, from food to fuel, and especially the privately funded parts of the US shale business seem to be increasing activity and looking to grow production, reminding us of the inherent challenge of market share. The oil policy of oil nations is a source of uncertainty and could push oil prices in either direction in the coming days.

That being said, the fundamentals of the oil market for the next few months seem quite predictable. The economic recovery and the likely rebound in travel and leisure activity will boost oil demand and additional supplies will be needed to avoid an over-adjustment. That’s what the price rally indicates.

We still see a temporary bounce above $ 70 mid-year. However, in the long term, we are skeptical that such price levels will persist, as both oil from shale and oil from oil-producing nations should eventually return to the market.

Article by Norbert Rücker, Next Generation Director of Economics and Research at Julius Baer

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Jacob Wolinsky is the founder of ValueWalk.com, a popular value investing and hedge fund focused investment website. Jacob worked as an equity analyst first at a micro-cap focused private equity firm, followed by a stint at a smid cap focused research shop. Jacob lives with his wife and four kids in Passaic NJ. - Email: jacob(at)www.valuewalk.com - Twitter username: JacobWolinsky - Full Disclosure: I do not purchase any equities anymore to avoid even the appearance of a conflict of interest and because at times I may receive grey areas of insider information. I have a few existing holdings from years ago, but I have sold off most of the equities and now only purchase mutual funds and some ETFs. I also own a few grams of Gold and Silver
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