Oil in Global Economy Series: Key bearish factors killing oil price rally

Despite showing early promise of further gains, the price of oil, which reached the highest level since June 2015 has now declined for six consecutive days. Brent is currently trading at $55.7 per barrel, down more than 7 percent from its peak above $59 per barrel. Let’s take a look at the key factors, which are casting shadow over the oil bulls,

• OPEC deal disruption – There is an ongoing rumour in the market that the OPEC agreement is unravelling. Unofficial commentaries suggest that sizable numbers of OPEC producers are not ready to rally behind the OPEC/N-OPEC agreement that is aimed at reducing global oil supplies by 1.76 million barrels per day without any modification. The OPEC production is also expected to be higher in September.
   
• U.S. oil production – The oil production in the United States has not only continued to rise over the year, it has recovered faster than expected from the devastation caused by Hurricane Harvey and Irma. U.S. oil production is currently at 9.55 million barrels per day, up more than a million barrels from a year ago.
   
• Kurdistan referendum – Some expected the Kurdish referendum to be bullish for oil and Turkey threatened to halt supplies but the threat hasn’t materialized.
   
• Speculative bullish bets – As the price of Brent reached the highest level in more than two years, Speculative bullish bets on the Brent futures rose to record highs. With such speculative force pushing price in the short-term, there is always a risk of sharp selloffs as traders take profits at the key level, which in this case was $59 per barrel area.