Oil seems immune to what in the past — artificially, effectively and quickly — caused a surge in its prices. Recent OPEC cuts have had little (or no) effect on the market. The sanctions from Saudi Arabia (and other countries in the Persian Gulf) on Qatar were barely noticed. Unlike all NYSE indexes, that show a steady post-crisis growth, crude oil benchmarks have not taken off, showing a bear market behavior. Forecasting trends and prices brings up an important question: Will geopolitics alone be able to influence the oil and gas market as it did in the past?

We may be witnessing a more realistic version of the market taking over — the invisible hand in action. New players have a bigger stake on the oil industry, thus the power to influence oil prices is scattered among a larger number of parties rather than a cartel and its allies (as it was in the past with OPEC). The result is that a single action (i.e., cutting oil production) does not have a large effect on the global oil market, because there are other “forces” playing a role almost just as big in the commodity’s overall supply and demand. Perhaps we are approaching to a period of steadier values — i.e., “lower for (much) longer.” Don’t get me wrong, I am not suggesting that the trends will be easier to predict, but that it may be more difficult for a single party to artificially influence prices.

One thing to watch closely is the current glut and the storage capacity, which is likely what has driven not only the market but also OPEC’s decisions in the last years. Russia has agreed to follow Saudi cuts in hopes of reducing their current stock and rising crude prices, but the market has showed the opposite. The glut alone is far from being the main price driver. There are two main non-OPEC actors that also play an important role.       

China’s Slowdown

China’s energy consumption plays a major role in the global economy. According to BP’s Statistical Review of World Energy, China’s total energy consumption increased less than 2% YoY in the last two years (2015, 2016) and its GDP annual growth rate in 2016 (6.79%) was lower than that one in 2015 (6.9%). Oil consumption shows a rather low increase (3%), half of what the country’s oil demand was for the previous year (6.9%).