Analysis

3 reasons why oil prices are on fire

  • Oil prices rise higher and higher, reaching the highest levels since 2014.
  • All the recent developments support elevated prices.

WTI Crude Oil extended its upwards journey, trading above $74 per barrel. Prices have been on the rise for some time, but the recent upswing is steeper than previous moves. The last time that the contract traded at these levels was back in November 2014, just before OPEC decided not to cut output.

And OPEC is the first reason out of three:

1) Confusing OPEC decision

The OPEC gathering and the accompanying conversations with non-OPEC countries, namely Russia, yielded a decision to raise output. The outcome should have brought prices down on enhanced supply. However, there was no clarity about how exactly it would be achieved. 

According to some analysts, the deal is a fudge that only calls for 100% compliance but no change in quotas. In any case, this is not the shock absorber to rising prices.

2) Trump's pressure on Iran

Iran produces around 2.4 million barrels per day. The US has recently abandoned the Iran deal on nuclear arms, known by the initials JCPOA. The Administration renewed sanctions but took one step further. They now want other countries not to buy oil from Iran.

The move, which joins trade wars, could significantly squeeze Iran's supply of oil to global markets and weigh on prices. Some buyers will undoubtedly remain, but if the US gets most of its way, it also boosts prices.

3) US Inventories 

The US Energy Information Administration publishes inventory data on a weekly basis, and the resulting fluctuations in oil prices are usually minimal. The last report, released on June 27th, was different. The EIA reported a decrease of no less than 9.9 million barrels on a weekly basis.

The report, coming on top of the previous events, sent prices spiraling higher and the move goes on and on. Needless to say, next week's inventory data will be watched very carefully.

All in all, the price of the black gold has good reasons to rise. This is not the kind of inflation central banks are looking for.

More: Emerging markets currency outflows can ignite a developed world recession

 

Information on these pages contains forward-looking statements that involve risks and uncertainties. Markets and instruments profiled on this page are for informational purposes only and should not in any way come across as a recommendation to buy or sell in these assets. You should do your own thorough research before making any investment decisions. FXStreet does not in any way guarantee that this information is free from mistakes, errors, or material misstatements. It also does not guarantee that this information is of a timely nature. Investing in Open Markets involves a great deal of risk, including the loss of all or a portion of your investment, as well as emotional distress. All risks, losses and costs associated with investing, including total loss of principal, are your responsibility. The views and opinions expressed in this article are those of the authors and do not necessarily reflect the official policy or position of FXStreet nor its advertisers.


RELATED CONTENT

Loading ...



Copyright © 2024 FOREXSTREET S.L., All rights reserved.