Why the price of oil is likely to move higher - July 16

[dan_s]

WTI was due for a pullback. This morning WTI was heading to $70/bbl when the shorts decided to harvest their gains for the week. At the time of this post, the AUG21 contract is flopping around $71.80/bbl.

Below is the conclusion from this article: https://www.investing.com/analysis/opec ... -200591639

Crude oil’s price action in the wake of OPEC’s discord is impressive. At least three factors could send the price a lot higher over the coming months and years:

1. The Fed may continue to call inflationary “transitory,” “temporary,” or anything else other than what it is, the legacy of a tidal wave of central bank liquidity and a tsunami of government stimulus. Inflation is bullish for all commodities, and crude oil is no exception.

2. The conflict between the UAE and other OPEC members and Russia is a microcosm of the turbulent state of the Middle East. The region is home to over half the world’s petroleum reserves. With US output declining because of the greener path for US energy policy, any events that disrupt supplies, refining, or logistical routes in the area could dramatically impact oil’s price. Crude oil has become a lot more sensitive to events in the Middle East with the Biden administration in the Oval Office.

3. NYMEX crude oil futures recently moved marginally above the October 2018 peak to the highest price since 2014. The price remains a stone’s throw away from the highs, which could be a gateway to triple-digit oil prices.

OPEC tried to shoot itself in the foot at the latest biannual meeting, but US energy policy pushed the foot out of the line of fire. OPEC looks likely to squeeze US consumers with higher prices despite the cartel’s incompetence.

Meanwhile, on July 14, news that OPEC+ reached a provisional agreement to taper the production cuts by 400,000 bpd with a compromise that allows the UAE to increase output from 3.2 mbpd to 3.65 mbpd starting in April 2022 weighed on the oil futures market. While crude oil was overdue for a downside correction, the strength of demand is likely to lead to a higher low. US producers have been increasing output, but the shift in US energy policy likely created a supply ceiling as fossil fuel production runs contrary to the Biden administration’s green path.