Five potential risks to the oil rally - WSJ

Dhwani Mehta FXStreet

The Wall Street Journal (WSJ) is out with an opinion piece, highlighting the five potential risks that could hamper the ongoing oil rally.

Key Five Risks:

1. Geopolitics

While tensions in the Middle East has led to possible disruptions in oil supply (which is one of the supportive factors in the current rally), these geopolitical tensions will eventually subside - and oil prices could lose their immediate support.

2. Crude demand

Oil markets are heavily dependent on demand and supply talks but I don't see global demand waning that much, not when a global growth is moving forward in such synchronized fashion.

3. OPEC discipline

This is one of the bigger factors that could influence prices. The issue here is compliance - especially in times when prices are rising. It wouldn't be surprising to see some producers "cut" corners and increase output to take advantage of the higher prices.

4. US drillers

One of (if not the biggest) the contributors to the downfall in oil prices in recent years. Higher prices will give more incentive for US shale producers to pump harder.

5. Market speculators

OPEC's argument has always been "when prices rise, it's due to fundamentals" and "when prices fall, it's due to speculation". Well, whether or not they want to believe in it, bullish bets on oil has risen considerably in the second half of last year and has even surpassed that of the start of 2017 - according to data from ICE. So, the rally may have just gone too far, too fast and a retracement/correction here is very much a possibility.

Author

Dhwani Mehta

FXStreet

Residing in Mumbai (India), Dhwani is a Senior Analyst and Manager of the Asian session at FXStreet. She has over 10 years of experience in analyzing and covering the global financial markets, with specialization in Forex and commodities markets.

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