Oil May Be Stuck at $51-$55 Pending Further OPEC Cutback Evidence and Outcome of U.S./Iran Hostilities

Analysts had reiterated that rising U.S. production could drive prices lower.

With marginal gains made by Brent and West Texas Intermediate on Wednesday, all analytical eyes were once again focused on the Organization of the Petroleum Exporting Countries (OPEC) in the expectation that prices will not climb further until more data is produced about the cartel's oil cutback initiative that was launched on January 1.

Bill Baruch, senior market strategist at iitrader.com., said, "U.S. crude could be in consolidation from $51 to $55 for a while, until there's more evidence on OPEC production cuts or more evidence of production picking up or stabilizing in the U.S."

Although Reuters this week reported high compliance among OPEC cutback participants and says Russia has cut production in January by about 100,000 barrels per day, Stephen Brennock, analyst at PVM, thinks any hopes of sustained recovery in price "will depend on increasing efforts by OPEC to curb output, though the prospect of an upside breakout will be undermined by the budding revival in U.S. crude production."

Analysts aren't holding their breath that prices will break out any time soon, one reason being that U.S. crude stockpiles for the week ended Friday reportedly rose 6.47 million barrels, nearly double the expected increase; this compelled John Kilduff, founding partner of Again Capital, to remark, "It was a very bearish report on several fronts, from the large across-the-board builds in the major categories, and the continued decline in refinery runs."

With market sentiment swayed greatly by rumour and innuendo, and with a long history of hawkish world leaders causing trepidation among investors, presumably oil's potential to break out will be further compromised by increasing tensions between Iran and the U.S. president Donald Trump.

On Wednesday, Michael Flynn, Trump's national security advisor, declared that "we are officially putting Iran on notice" for the Islamic republic test firing a new ballistic missile - which Iran claims is within their right to do but the White House and other nations (such as Israel) insist is a flagrant violation of a United Nations resolution.

Also presumably stoking the fears of investors is Mikhail Gorbachev, former president of the Soviet Union, who in a Time magazine opinion piece wrote that "it all looks as if the world is preparing for war" because "politicians and military leaders sound increasingly belligerent and defense doctrines more dangerous."

Ignoring growing evidence that Trump and current Russian president Vladimir Putin are forging political ties, Gorbachev lamented that relations between the U.S. and his country have eroded; he called on the two leaders to re-establish a resolution stating that nuclear war is "unacceptable and must never be fought."

Earlier this week, Fadel Gheit, senior energy strategist at Oppenheimer & Co., joined the growing ranks of experts who think a truer number for upcoming oil prices is $60 - but that it will take two to three years before this becomes the "new normal".