An oil market finally in balance has been the hope of every player in the industry for months, and observers now predict that such a case may be close at hand. It can be hard to define what a “balanced” market really is, however – it could mean a consumption level that matches production, inventories that are at a healthy five-year average, or an absence of unexpected change in the market.
Is It Impossible to Make Predictions?
As relentlessly as analysts dissect the oil industry, they have little dependable information to go on. Inventories, for example, are not reliably reported. Most countries not part of the Organisation for Economic Co-operation and Development (OECD) don’t even report on their stock levels. Analysts rely on the assumption that non-OECD inventories maintain stocks at levels comparable to those of OECD countries. In reality, however, non-OECD inventories usually grow faster. Those markets tend to not even be as cost-conscious as the OECD countries, often neglecting to make corrections in their inventories in response to market changes.
Numerous other variables affect the market. From supply disruptions in various countries to economic booms or recessions, and large, irrational trades at various markets, there are many forces that knock a market off-balance.
Yet, it’s possible to make some predictions – if you believe in the free market.
A Long-Time Contango
A futures market that is contango is one in which players foresee a rise in the price of the commodity in question in the near future. Understandably, in a contango market, operators hope to buy up at a low current price and sell at a profit at a future date. Statistics show that throughout the years 2015 and 2016, the market was in backwardation, the opposite of contango. All through 2017, however, contango in the market has dropped reliably. The fact that investors everywhere have been raising inventories over an extended period of time is reliable evidence that there is a widespread agreement on a market that is now ready for normal behavior. In other words, it is in balance.
One may disagree with the calculations of an expert or analyst, but it’s hard to argue with the calculations of hundreds of operators and investors. It’s crowd-sourced information on a free market, and it is the best indicator available at the moment.
A market in balance is excellent news for every player in the oil industry, including drilling contractors. According to Sigma Drilling Technologies, a leading dampener manufacturer for drilling operations, looking to long-term investor behavior is the ultimate indicator of the direction a market will take.
The oil market today is on the rise and drillers need to be ready for it. To learn more about boosting your systems’ performance and reliability with pulsation dampeners, call Sigma today at (281) 656-9298.
