Oil prices saw a 0.4% jump on Friday and the trend will continue until it abruptly stops and starts a downhill road to who knows where.
Reuters said oil prices were pushed up by ongoing supply cuts led by OPEC+ and U.S. sanctions against Iran and Venezuela, putting the crude markets on pace to post their biggest Q1 gain since 2009.
U.S. West Texas Intermediate (WTI) futures were at $59.56 per barrel up 26 cents rising for a fourth straight week and are set for a Q1 gain of 31%, said Reuters.
Brent futures were up 30 cents at $68.12 per barrel, up by 27% in Q1 alone, Reuters added.
OPEC+ pledged to cut 1.2 million bpd of supply this year, and are meeting in June to discuss whether to continue withholding supply or not.
“Production cuts from the OPEC+ group of producers have been the main reason for the dramatic recovery since the 38% price slump seen during the final quarter of last year,” said Ole Hansen, head of commodity strategy at Saxo Bank.
Other factors propping up prices include US sanctions on both Iran and Venezuela.
Given the OPEC+ cuts, however, Bank of America said it expected oil prices to rise in the short-term, with Brent prices forecast to average $74 per barrel in the second quarter.
Down the road
Hansen said, “the biggest short-term risk to the oil market is likely to be driven by renewed stock market weakness.”
Stock market volatility reflects unsettled feelings around a global economic slowdown rearing its ugly face again, weakening business confidence.
When that happens, demand for oil also weakens, and prices start to fall.
CNBC reports that Iran’s sanctions waivers expire in just over a month putting more downward pressure on prices
Earlier this month, OPEC Secretary General Mohammed Barkindo told CNBC the uncertainty around the waivers is making OPEC’s effort to balance the oil market more difficult.
Lastly, according to Oil Price.com, US drilling activity has plateaued with the rig count zig-zagging well below the peak from last November.
“The price meltdown in Q4 of 2018 is still working its way through the system,” it said.
Total U.S. oil rigs are stood at 853 for the week ending on February 22, down from a peak of 888 in November.
“Multiple drillers have laid out more conservative and restrained drilling programs, facing pressure from shareholders not to overspend,” said OilPrice.com.
If shale stalls, supply lessens and the effect will be to prevent further price downfall.