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US Oil Prices Hike On Crude Oil Deficit

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US Oil Prices Hike On Crude Oil Deficit

Crude oil prices hit a high for 2016, as we see a group from the industry report a shocking draw in US stockpiles and a soaring rally from the gasoline market.

The cost per barrel is nearing to $50, which is good news for commodities.

crude oil chart

 

 

 

 

 

 

 

 

 

 

A look at performances from oil companies:

WTI (Brent and U.S crude’s West Texas Intermediate) has now started trading on an increase of 3%.

There was an estimated increase of $2.01, with the price landing $46.49.

  • PetroChina; it currently yields 4.80% which has shown consistent top and bottom-line growth – despite the slowdown in China. However, be cautious with the bear market creeping into oil.
  • BP; this petroleum business has been through some storms, but it still has the stamina of increasing the revenue through the broader market on an annual basis.
  • Western Refining, Inc; this refinery projects a 2.90% yield through generating a rising cash flow – showing steady and cemented profits.
  • Delek US Holdings, Inc; the last three years has seen this firm’s stock value appreciate by 165%; then it may lose competitiveness.

Those were some of the best current performances.

The crude markets, in general, have experienced a lot more optimism, especially on oil products – if margins do remain high, then many refineries will quickly become prosperous.

 

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What caused the oil crash in the first place?

In 2014, demand was low for oil because of weak economies, an increase in efficiency, and a surge in popularity for alternative fuels.

The USA also became the world’s biggest oil producer, which meant fewer imports and more supplies to spare – resulting in supply surpassing market demand.

June 2014 experienced the price of a barrel plunge from $115 to below $70 (a whopping drop of 40%).

Also, Saudi Arabia and their Gulf allies would not lower their supply, to help restore barrel prices – a move to stitch up their enemies Russia and Iran. Saudi were not bothered by the very low prices, as they had a stock value of $900 billion reserves.

What has recently changed for oil?

Recent weeks has shown the oversupply to start dropping in line with demand, through the following nations experiencing power outages:

And many others.

USA oil production also declines

The USA managed to overtake both Russia and China in being major oil players, managing to pump over 9.43 million barrels per day in 2015. However, the lesser demand did take effect when oil companies had to make cutbacks and redundancies – inevitably, slowing down production and halting new drilling explorations.

What Goldman Sachs says:

The Wall Street bank has concluded global equities to be a cause of concern over the last 12 months. Concerns mainly lie in high valuations and little to no growth aspects.

While the economic recovery has shown signs of slow growth; this makes the markets uncomfortable with taking any equity risk.

The Stock Markets

The major players haven’t experienced any great performances for 2016.

Examples:

  • S&P 500 index; only an increase of 0.2% so far this year.
  • The Stoxx Europe 600 index (SXXP); this slumped by 8.7%.
  • China’s Shanghai Composite Index (SHCOMP); this was down by 21%.

The commodity sector

The Commodity’s sector got a neutral up gradation by Goldman Sachs, which was mainly down to the contribution of growth in oil prices.

By this year’s fourth quarter, a barrel is expected to rise $51 per barrel – hoping to reach over $60 per barrel by the end of 2017.

Gold

This increase and the decrease is still bearish, with prices expected to fall below $1,150 per ounce, by the end of the year (a slump of 10% from the $1,272 trading price last Wednesday).

The Credit Market

This is where the bull market is happening, as they take an overweight stance for the 3 – 12-month horizon. This stance is because valuations are appearing much cheaper than in equity, which makes it a whole lot more possible to the investors.

Goldman Sachs overall summary:

An improvement in oil prices and ECB’s credit easing will be supportive to credit – currently, within the credit sector, the bank favors European investment grade papers and U.S. high-yield bonds.

However, what we need to look out for with oil:

Economic critics have advised caution with the Goldman Sachs announcement, believing that the price per barrel will be restricted to pass $50 –  as current levels are very limited.

Oil prices may have the slight probability of declining again, before moving higher again.

Goldman Sachs is popular for selling to encourage strength, especially as they have been expecting oil prices to increase for a while (even when a barrel was near to $40).

To sum it up…

Presently oil prices are still too low for oil productions to make any decent profit, but it is one to keep an eye on, as the light is starting to shine for this commodity.

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