Oil At $60: How Marginal Producers Cope Will Shape Market Direction

23-Jun-2015

As we approach the midway point of the current trading year, it has become apparent that oil benchmarks would find it hard to escape the $50-$75 per barrel range for the rest of the year, and much of 2016. Macroeconomics of the day also does not point to a dip below $50 barring the occurrence of an unforeseen financial tsunami.

As most producers are looking at non-OECD markets to export to, and demand there is holding up, if not firing on all cylinders, a steep price drop is highly unlikely. Atop the much asserted claim of too much oil coming on the market – in the region of 1.1 to 1.3 million barrels per day (bpd) by some accounts – each time there is minor uptick in price, a swift downward correction follows suit. Trading in recent weeks offers ample proof of this.

Furthermore, many producers large or small have kept their powder dry. The moment there is any sign of a mini price rally, more oil will come to the market acting as a corrective mechanism. Geopolitical risk, barring a flare-up of epic proportions, is being neutralized by the oversupply situation which has not eased as quickly as some had imagined. (By Gaurav Sharma Contributor to Forbes.com)

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Also see our look at oil prices.