The North American oil benchmark, WTI rallied around 19 percent since the members of the OPEC sealed a production cut deal on November 30th. However, for some of the members of the OPEC, the current $54 per barrel oil price isn’t enough to solve some of the socio-economic troubles they are having home. The drop in the oil price has triggered a socio-economic crisis in Venezuela and despite this rally and cutting down benefits, Saudi Arabia is expected to run a deficit close to 10 percent in 2017.

We have forecasted that the oil price rally to first reach $59 per barrel and then move towards $68 per barrel over the OPEC deal. So what has been keeping the price of oil from reaching these targets?

• First of all, the market participants are waiting out for the deal to get implemented. So, the focus would remain on the OPEC oil market report from January, which will be published in early February. The report will provide first-hand evidence on whether the OPEC members are keeping to their words or not. 
• Secondly, the massive amount of hedging is keeping a lid on oil prices and that is probably the biggest reason for suppressed oil price despite a buildup of record long positions by hedge funds. The commitment of traders report shows significant short positions buildup by Swap dealers and the increase has been particularly steep after the announcement of the OPEC deal on November 30th. As of now, the swap dealers, who are usually the hedgers have net short positions of approximately 400 million barrels, which is almost equivalent to the long positions buildup by managed money.