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Stock and commodities markets

Why Are OPEC and Russia Unable to Trigger Oil Price Rally?


Not so long ago, oil prices reached the 10-month low. Since early 2017, oil prices have already dropped by 20%. The low efficiency of the joint efforts to cap oil production in order to support oil prices is now rated differently by the international expert community.
 

 

 

 

In June 21, the prices dropped by 2% at a time. This brought them to the 10-month low, which came as a shock to most observers out there. After the OPEC and Russia agreed to extend the so-called Vienna Accord, most experts started predicting higher oil prices, but they have failed so far, as you can clearly see.
 
Apparently, the oil exporters were hoping for the same scenario that was previously seen a number of times in the past. The thing is, production cuts have always resulted in higher oil price, but not this time. Being encouraged by the optimism expressed by the oil exporters, many traders and investors started loading up on oil futures, but now they seem to have failed on their oil deals since the bias is now bearish despite the oil agreement extension.

 

 

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A couple of months after the initial agreement was signed, the participants found out that their oil inventories waiting to be exported were actually shrinking at a slower-than-expected pace. The demand for crude oil around the globe happened to be lagging behind their expectations as well. On top of that, American shale oil companies started behaving the way it was expected.
 
Small-scale American companies producing shale oil used to be on the verge of bankruptcy due to cheap Saudi oil exported in quite large amounts and over an extended period of time. However, the shale companies survived this and even revived as soon as oil prices started going up earlier this year. They unexpectedly started pumping more oil with the help of fewer oil rigs.
 

 

As a result, nobody can deny the shale oil phenomenon today. Yet, the impact seems to be serious. The thing is, despite the civil war in Yemen, the Qatar crisis, and the disputes between Russia and the USA over the situation in Syria, oil prices have still been going down over the last few weeks. The whole point is, previously any of those factors could have triggered an oil rally in an instance. But this is not happening now, and chances are the U.S. shale oil industry is currently one of the key drivers of the downtrend in the global market of crude oil. Of course, the downtrend can be partially explained by higher production in Libya, Brazil and some other oil-exporting countries. However, there is no denying the fact that the abundance of American shale oil and natural gas is the key factor pressing oil prices. For the first time in many decades, the USA has become a major oil exporter.

 

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