For many energy traders, 2016 has been as brutal for them as it has been for celebrities. With prices sinking to lows that have not been seen in decades, small businesses and investors have felt the pain of plunging and unpredictable prices throughout the year, as an ongoing glut in supply has made it difficult for them to make a profit.
If you are trading this commodity through platforms such as Hantec Markets, it’s important that you understand the state of the oil and gas industry.
By understanding what the industry has been through this past year, you will be able to better predict where energy is going as we enter 2017. Below, we will delve into the details of one of the most challenging years for oil producers and investors in a generation.
2015 was a bad year for producers, with the price of West Texas Crude averaging just under $49 per barrel. However, as 2016 began, nobody knew the miserable depths to which its downward spiral would descend.
With storage tanks in Cushing, Oklahoma filled to the brim and legions of oil-clogged ships anchored off major ports worldwide, the price of West Texas intermediate sank to $26 per barrel in February, marking a 14-year low.
The arrival of driving season in the Northern Hemisphere helped prices recover to $50 by July, but historically low global demand kneecapped any further recovery, as prices floundered between the $40 to $50 range for the remainder of the year.
Iran re-enters the global market
Aside from the ongoing slowdown of China’s economy, the re-entry of Iran into the global oil market also had a cooling effect on the price of this commodity.
With a multilateral deal being reached with the United States and the European Union concerning its nuclear program, Iran had sanctions removed that had prevented them from exporting their oil.
Since the first of these were removed back in January, production has increased by more than 300,000 barrels per day, with sharper increases expected as we move forward into 2017.
With Asian markets sharply increasing energy imports from Iran, and a plan afoot to secure over $130 billion dollars to help modernize its energy infrastructure, it is likely that this oil-rich nation will only add to the oil glut that has been plaguing the market recently.
OPEC agrees to a production cut – but will it work?
In a year filled with gloomy news in the oil and gas industry, 2016 saved one of its brightest moments for the end, with OPEC agreeing to a production cut of one million barrels per day on November 30th.
Shortly after the announcement, some rivals agreed to production cuts of their own, pushing the total commitment to just over 1.8 million barrels per day. This drove the price of West Texas Intermediate to $53 per barrel, where it has hovered since the end of November.
Whether any of these resolutions will have the desired effect is anybody’s guess, however, as the exclusion of economically distressed producers (Libya, Iraq, and Iran) from the deal leaves the door wide open for them to pump as much oil as possible in order to fill their empty coffers.
What’s more, producers in the United States and Canada have been quickly adapting to the low price environment of the past two years by decreasing costs in the oil field and by increasing efficiency through measures such as enhanced oil recovery.
Oil prices are slated to rise above $60 per barrel in the first half of 2017 as a result of this measure by OPEC. However, this will create an incentive for non-OPEC producers to pump oil at a greater rate, which could cause prices to slide below $60 per barrel just as quickly.