Oil climbs to a three-week high.
Oil climbs to a three-week high.

Oil benchmarks Brent crude and West Texas Intermediate closed trading on high notes heading into the final day of the week ending Jan. 27. Reaching $56.24 and $53.78, respectively, the two oil stocks achieved their highest price point per barrel in roughly three weeks, signaling a boost in investor confidence, MarketWatch reported.

The positive figures highlight oil’s recent price climb in the face of stubborn inventory figures, higher dollar value and general uncertainty in the global marketplace. Analysts are chalking up the price rally to OPEC’s production cut finally taking hold, something that was not certain to occur by any measure. Further, many insiders are now bullish on oil’s prospects dating back to Q4 2016, and predicting continued growth in 2017.

Prices are up, but many still have doubts
Higher oil prices have provided a foundation from which analysts have projected even more price growth in the near term, validating their previous predictions. Future growth is by no means a foregone conclusion, however.

Tim Evans, energy analyst for Citi Futures, noted that many companies have a greater sense of reassurance at the moment but that sentiment may not hold, according to MarketWatch.

“Belief that OPEC-led production cuts would quickly or eventually tighten the global oil balance was thus reinforced and money managers, already heavily long the market, reassured,” said Evans. “We remain concerned that the combination of higher U.S. production and seasonal refinery maintenance will slow the rate of rebalancing to a degree that will lead to a downward correction in prices over the immediate term, but today is apparently not the day that happens.”

Carsten Fritsch, senior commodities analyst at Commerzbank, expressed similar thoughts, believing the data suggests prices will soon slide into a downward trajectory, according to CNBC.

While WTI and Brent may have jumped more than $1 each Jan. 26, it’s unlikely oil’s value will hold over the near term, meaning this week’s success may be more temporary than some reports suggest.

The underlying factors that may help push oil prices back down are mainly higher-than-expected crude stockpiles and a stronger U.S. dollar. Nations aren’t burning through their oil reserves as quickly as analysts and researchers had once thought, making the long slog toward price normalization longer still. Additionally, higher interest rates in the U.S. combined with potential tariffs on imported goods might make it harder for foreign companies to do business with the U.S. And without being able to sell oil to such a large consuming nation such as the U.S. due to slimmer profits, the world’s oil isn’t being used as quickly as necessary.

Russia filling gaps left behind by OPEC
Another key determinant of oil’s future will be the relationship between oil-rich nations and countries that are continuing to consume more and more oil with each passing year. OilPrice.com reported OPEC’s recent production cuts have meant Asian nations such as China are no longer able to buy up cheap oil like they once were, their main supplier scaling back.

In OPEC’s absence, Russia has now become the No. 1 supplier of oil to China, a first. China’s thirst for more oil will only rise in the future, with population levels projected to increase.

Russia’s move is a strategic one that will have lasting consequences for decades, as the nation has indicated it intends to break OPEC’s dominance on oil supplies in the Eastern hemisphere. And although Russia has itself curbed production, it has done so while still ramping up its exports to nations such as China. The biggest loser in this paradigm shift is Saudi Arabia, which had previously held the title of China’s top supplier.

As these market shifts play out, prices will surely reflect whatever turbulence is left behind in their wake.