The fragility of oil prices has been tested by a confluence of factors over the past month. In this investment note, Audra Stundziaite, Senior Credit Analyst at Hermes Investment Management, identifies the four fundamental factors likely to keep global oil markets finely balanced over the medium term. By remaining cognisant of associated risks, she argues investors should be able to successfully navigate through this environment.
After three months of relative stability, WTI oil prices dropped more than 10% in March, prompted by persistently high US inventories and confusion related to Saudi Arabia’s February production levels. Prices rebounded in late March and early April on signs of inventory draws, as well as more constructive headlines regarding the upcoming OPEC meeting and rising geopolitical tensions in the Middle East.
This price volatility has reminded investors of global oil market fragility and the importance of appropriate positioning. We maintain our view of range bound oil prices at $45-55 a barrel, as the four factors below are likely to continue influencing the delicate rebalancing act within global oil markets.