Could Oil Be Ready To Jump Above $50?
FxPro Financial Services Ltd | Aug 13, 2020 05:31AM ET
Despite the very cautious growth of oil, the situation more and more resembles a compressed spring ready to shoot up at any moment to the area of $50 per barrel of American WTI and $54 per Brent.
Despite some stoppages and slippages, there is still an upward slope in global markets. The world economy continues to recover from the spring slump, without significant grounds for prolonged pressure on financial markets.
Of course, the situation is still much worse than at the beginning of the year. However, the monetary policy in recent months was mild, nourishing the hunt for yielding assets.
Restrictions on oil production have shifted the balance of power towards demand in the US. Fresh data showed a decline in crude oil reserves for the third week in a row, by 22.5 mln barrels. This decline is slightly ahead of seasonal trends.
Commercial stocks are now 16.7% above last year's level, compared to 20.5% that we saw three weeks ago. The strategic oil reserve also shows a symbolic decline.
Last week oil production fell to 10.7 mln barrels per day. Except for one week in June, this is the lowest figure since May 2018.
Data on the number of drilling rigs in operation also confirm the trend of a decline in the activity of oil workers. Last week the amount fell to 176, a new low since 2005. The total number of rigs fell to 247, continuously updating historic lows, giving energy market share to other producers.
At the same time, inflation in the USA, as well as in the whole world, has already reversed upward. Yesterday, the US data surprised with a spike in the core price index (excluding food and energy). This is often a sign of healthy consumer demand, which is very controversial these days. Yet in any case, inflation is spurring the price of oil and other commodities. Multiple increases in oil prices often accompany periods of higher inflation, and we may well be at the start of one of these periods.
The short-term technical picture also seems bullish. The WTI price was quickly redeemed at the end of July after touching the 50-day moving average and is now approaching a 200-DMA, which is currently acting as a resistance. However, the submission of the bears and the exit above $42.75 might trigger further buying, quickly taking the price to $48 and may even test $50 next month.
Get The News You Want
For Brent, significant levels of attraction are in the $47 (200-DMA) and $54 (highs of March and lows of February) area, where the price may move in September.
The FxPro Analyst Team
Trading in financial instruments and/or cryptocurrencies involves high risks including the risk of losing some, or all, of your investment amount, and may not be suitable for all investors. Prices of cryptocurrencies are extremely volatile and may be affected by external factors such as financial, regulatory or political events. Trading on margin increases the financial risks.
Before deciding to trade in financial instrument or cryptocurrencies you should be fully informed of the risks and costs associated with trading the financial markets, carefully consider your investment objectives, level of experience, and risk appetite, and seek professional advice where needed.
Fusion Media would like to remind you that the data contained in this website is not necessarily real-time nor accurate. The data and prices on the website are not necessarily provided by any market or exchange, but may be provided by market makers, and so prices may not be accurate and may differ from the actual price at any given market, meaning prices are indicative and not appropriate for trading purposes. Fusion Media and any provider of the data contained in this website will not accept liability for any loss or damage as a result of your trading, or your reliance on the information contained within this website.
It is prohibited to use, store, reproduce, display, modify, transmit or distribute the data contained in this website without the explicit prior written permission of Fusion Media and/or the data provider. All intellectual property rights are reserved by the providers and/or the exchange providing the data contained in this website.
Fusion Media may be compensated by the advertisers that appear on the website, based on your interaction with the advertisements or advertisers.