Confidence in the Market is Skyrocketing

By: Jon Kalchthaler / January 29, 2018

Oil prices took a dip today, but that has not been the case for most of January thus far.  Even with this decline today in pricing, we are still seeing the strongest beginning to a year for oil prices in five years.  There has been some key factors that have helped boost oil prices at the end of last week to levels not seen since quarter four of 2014.  To start, one contributor was the weakness of the dollar.  By the end of last week the dollar index had dropped down 1.6% to 88.89, which again is a level we have not seen in three years.  It did not help that the U.S. Treasury Secretary, Steven Mnuchin, had showed support for a weaker greenback.  The glaring quote that occurred was when Mnuchin said “obviously, a weaker dollar is good for us as it relates to trade and opportunities.”  This is said to mark the first time a top economic official has spoken in favor of a weaker dollar.  To begin this week there has been an uptick for the U.S. dollar after the president spoke at the World Economic Forum in Davos regarding the new resurgence of the U.S. economy. 

Other factors that played into the price spike this month were reports that the Saudi Energy Minister had echoed the plan of continuing to cooperate with Russia, and other OPEC members, to do what it takes to cut production through 2018.  Lastly, the PVM Fundamental Report today has stated “Global oil demand prospects were given a lift by the IMF which upped its world GDP forecast for this year to 3.9%.”

With speculation as to how high these oil prices can get this year there are signs that it may be more fragile than people are currently thinking.  With the current oil prices like this, the U.S. does not seem to be showing any signs of slowing down with its production.  Just last week alone the U.S. oil rig count has risen by 12.  This is the largest spike in oil rigs in the U.S., in one week, since March 2017.  To add to this, PLATTS.com reports that confidence is so high right now that the “total value of money managed  is now greater than in 2014 when oil prices exceeded $110/b before plunging to multi-year lows.”

To conclude, there is one more thing to have on the radar.  If OPEC does not enjoy what the U.S. is currently doing with ramping up its shale production, do not look north.  Reuters is reporting today that Canada has two shale formations named the Duvernay and Montney that could produce just as much, if not more, than some of the strongest shale formations in the U.S.  I will leave you with the following reports from the Canadian National Energy board of the projected stats for these oil formations and they are:

  • Natural Gas potential of 500 trillion cubic feet
  • 5 billion barrels of oil
  • 20 billion barrels of natural gas liquids

Image result for canadian shale oil

These shale fields are still within the exploration and discovery phases but this would obviously have a very large impact on pricing in the future.


Categories: Daily Market Update


Jon Kalchthaler

Written by

Jon Kalchthaler


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