Energy prices have been very volatile over the last two years and this may remain the case for the rest of 2017. Between OPEC’s desire for more market share and higher prices, the U.S. increasing production by 9.1 mb/d this month, Iran and Iraq raising production later this year, and Libya and Nigeria adding production while not being a part of the OPEC quota, a glut may arise during the spring shoulder season which we have now entered. We see crude having downside risk to the low US$30s over the next few months due to these issues. Additional downside could occur this summer if demand is lower than normal — recent U.S. auto sales have been very disappointing. If we see any market correction and liquidity becoming constrained, unprecedented long speculative holding in crude oil may be aggressively sold and in that case, a test of the February lows of US$26 might occur. We recommend investors lower their exposure and hold significant cash for a shakeout buying opportunity later this year.

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