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.

Yohay Elam FXStreet

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

Author

Yohay Elam

FXStreet

Yohay is in Forex since 2008 when he founded Forex Crunch, a blog crafted in his free time that turned into a fully-fledged currency website later sold to Finixio.

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