The oil prices to bounce back in 1st & 2nd Quarter of 2016

The Fall

In December 2015 in Vienna the OPEC agreed to disagree on cutting production irrespective of global over supply of 1 million bpd. The WTI plunged 6% to below $38.60 a barrel & Brent plunged 5% to below $40.70 a barrel. That was the trigger of a plunge that brought the prices of oil to a 13 year low by mid December 2015.

The Rethink

The unwillingness of the OPEC and other oil producers to cut the production, whatever the reason maybe (reducing the deficit or nation development or fighting terrorism or as many suggest to force competitive shale production out of business) the lower oil prices is  killing all the oil producers softly. Low prices necessitated more pumping to reach the dollar value needed by the nation.  It seems that the producers are finally of the view that its better to agree to agree on at least freezing the production at January 2016 levels for the greater good of all the producers including the new entrant Iran (following the lifting of sanctions). 

The Bounce back

This buzz of possible freeze in oil prices on 18th Feb saw a rally of both WTI & Brent  that later dipped following the US oil inventory. Yet the vibes are that January will see oil prices start a rally that would take the prices above $40 for Brent and $37 for WTI.

The Russia, Saudi and Iran is expected lobby and win the production output freeze for the reminder of First Quarter and through the Second Quarter. Whilst the production is stalled at January levels, the anticipated economic growth in the main consumption markets especially China is expected to boost the rise. 

Considering the uncertainty of the technical variables and fundamental variables that would impact the oil prices no wonder that the forecasters are  casting an awkwardly wide ranging between $30-$46 for WTI and $32 to $49 for Brent for the First & 2nd Quarter of 2016.

It is likely that this Monday will see the beginning of a new rally and in 3 weeks WTI will break $40 resistance level and Brent will break $42 resistance level and will keep rising. It appears that the Oil is finally poised to bounce back. But definitely  not to the 2014 levels of $100  plus a barrel in the near future.