Oil Prices drop in early 2018

After hitting 2015 Highs Oil Price retreats

The year that has just started has already shown signs of Oil prices downhill. Brent crude futures lost 50 cents or 0.7 per cent. The price of Brent oil was at $67.72 a barrel, down from $68.07, and U.S. WTI crude was at $61.56 from $62.01. The previous day it touched $68.27, also the highest since May 2015.

Speculative bets that U.S. crude prices will rise have raised up since September as OPEC (the Organization of the Petroleum Exporting Countries) and Russia agreed to extend Oil cuts. The deal has helped to balance an oversupplied market and drain global stockpiles of crude oil. OPEC has decided to extend cuts in oil output by nine months to March 2018. Those cuts are likely to be shared again by a dozen non-OPEC members led by top oil producer Russia, which reduced output in tandem with OPEC from January.

Traders said political tensions in Iran, the third-largest producer in OPEC, had pushed prices higher.
“The protests in Iran add more fuel to the already bullish oil market mood,” said Norbert Ruecker, head of commodity research at Swiss bank Julius Baer.

On the other hand there are analysts like Gary Ross, global head of oil analytics at S&P Global Platts,who are not convinced the length in the oil market will herald a drop in prices.

“Many of the traders who are long oil are actually playing the so-called roll yield”- he said – This is the profit traders can earn when they roll their investment in crude oil futures, which expire every month, into contracts that expire at a later date. Right now, traders playing the roll yield are earning 5 percent to 10 percent on their investments, compared with a roughly 2.5 percent yield on U.S. 10-year Treasury bonds.”
“I think financial length is far more well-supported by the structure in the market,” he told “Squawk on the Street” on Friday. “So I think there is some vulnerability … but I also think that you’re not going to see any wholesale liquidation of financial length.”

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