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Oil Rally: An easy flow, or choppy waters?

Can anything put the brakes on the oil rally? Brent Crude and its cousin WTI have continued advancing throughout 2018, with seemingly nothing holding them back. With Brent’s June futures contracts trading just shy of $75 per barrel, oil prices have reached the highs last seen all the way in November 2014.

And as the rising tide lifts all ships, so has the oil majors benefited from higher crude oil prices, with Royal Dutch Shell (profits +41%), Total SA (+13%) and Statoil (+18%) reporting stellar Q1 earnings. If there ever was a time to start getting interested in the oil majors, the time could potentially be now.

What makes this oil rally so sustained is the fact that it is supported not by a single macro event, but by a multitude of converging factors which all push up the oil prices and produce such glowing quarterly reports from the big producers.

Combination of OPEC+ voluntary production cuts (recently extended in a ministerial meeting held by OPEC and Russia in Jeddah), Middle Eastern instability (with war in Syria and Trump trying his best to get out of the JCPOA agreement with Iran), sanctions on Russia (world’s largest oil exporter now that the Saudis have been capping their exports so hard) all produce a convergence that is keeping oil prices hot.

Too hot perhaps, you will ask? Is there a worry that the steadily rising oil market is in for a correction? After all, with Saudi Arabia cutting production, the silver medallist in the race for the “World’s Largest Producer” is now… you guessed it, it’s the United States. And as the oil prices rise, fracking, tar oil sands and Arctic underwater shelf oil are once again becoming cost efficient and potentially available for production. If US and Canada (completely unencumbered by OPEC restrictions) start delivering these harder-to-reach oil volumes on the market, the future could be less rosy.

So, how do you decide? Should investors take a closer look at putting their money into corporate oil giants? Or has the ideal moment already passed? Smart investors need to do their research if they really want to make their money work for them. They need to examine oil majors’ quarterly reports, follow the geopolitical situation and pay attention to the new kinds of oil production that will be coming on-line in the next few years.

Oil sector can be very exciting place, but profits are not guaranteed and to be fully prepared for all the political and financial ups & downs, you need to equip yourself with a great support structure. Click here to subscribe to our research newsletter so you could become a better investor and learn to navigate your way through all the intricacies of the oil market.

Avin Nirula, Trader at Accendo Markets, 27 April 2018

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This research is produced by Accendo Markets Limited. Research produced and disseminated by Accendo Markets is classified as non-independent research, and is therefore a marketing communication. This investment research has not been prepared in accordance with legal requirements designed to promote its independence and it is not subject to the prohibition on dealing ahead of the dissemination of investment research. This research does not constitute a personal recommendation or offer to enter into a transaction or an investment, and is produced and distributed for information purposes only.

Accendo Markets considers opinions and information contained within the research to be valid when published, and gives no warranty as to the investments referred to in this material. The income from the investments referred to may go down as well as up, and investors may realise losses on investments. The past performance of a particular investment is not necessarily a guide to its future performance. Prepared by Michael van Dulken, Head of Research

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