Best of the Week
Most Popular
1. Will Gold Price Breakout? 3 Things to Watch… - Jordan_Roy_Byrne
2.China Invades Saudi Oil Realm: PetroDollar Kill - Jim_Willie_CB
3.Bitcoin Price Trend Forecast, Paypal FUD Fake Cryptocurrency Warning - Nadeem_Walayat
4.The Stock Market Trend is Your Friend ’til the Very End - Rambus_Chartology
5.This Isn’t Your Grandfather’s (1960s) Inflation Scare - F_F_Wiley
6.GDX Gold Mining Stocks Fundamentals - Zeal_LLC
7.US Housing Real Estate Market and Banking Pressures Are Building - Chris_Vermeulen
8.Return of Stock Market Volatility Amidst Political Chaos and Uncertain Economy - Buildadv
9.Can Bitcoin Price Rally Continue After Paypal Fake FUD Attack? - Nadeem_Walayat
10.Warning Economic Implosion on the Horizon - Chris_Vermeulen
Last 7 days
Sheffield Local Elections 2018 Forecast Results - 22nd Apr 18
How Long Does it take for a 10%+ Stock Market Correction to Make New Highs - 21st Apr 18
Sheffield Ruling Labour Party Could Lose 10 Council Seats at May Local Elections - 21st Apr 18
Crude Oil Price Trend Forecast - Saudi Arabia $80 ARAMCO Stock IPO Target - 21st Apr 18
Gold Price Nearing Bull Market Breakout, Stocks to Follow - 20th Apr 18
What’s Bitcoin Really Worth? - 20th Apr 18
Stock Market May "Let Go" - 20th Apr 18
Overwhelming Evidence Against Near Stock Market Grand Supercycle Top - 20th Apr 18
Crude Oil Price Trend Forecast - Saudi's Want $100 for ARAMCO Stock IPO - 20th Apr 18
The Incredible Silver Trade – What You Need to Know - 20th Apr 18
Is War "Hell" for the Stock Market? - 19th Apr 18
Palladium Bullion Surges 17% In 9 Days On Russian Supply Concerns - 19th Apr 18
Breadth Study Suggests that Stock Market Bottom is Already In - 19th Apr 18
Allegory Regarding Investment Decisions Made On Basis Of Government’s Income Statement, Balance Sheet - 19th Apr 18
Gold – A Unique Repeat of the 2007 and How to Profit - 19th Apr 18
Abbeydale Park Rise Cherry Tree's in Blossom - Sheffield Street Tree Protests - 19th Apr 18
The Stock Market “Turn of the Month Effect” Exists in 11 of 11 Countries - 18th Apr 18
Winter is Coming - Coming Storms Will Bring Out the Best and Worst in Humanity - 18th Apr 18
What Does it Take to Create Living Wage Jobs? - 18th Apr 18
Gold and Silver Buy Signals - 18th Apr 18
WINTER IS COMING - The Ongoing Fourth Turning Crisis Part2 - 18th Apr 18
A Stock Market Rally on Low Volume is NOT Bearish - 17th Apr 18
Three Gold Charts, One Big Gold Stocks Opportunity - 17th Apr 18
Crude Oil Price As Bullish as it Seems? - 17th Apr 18
A Good Time to Buy Facebook? - 17th Apr 18
THE Financial Crisis Acronym of 2008 is Sounding Another Alarm - 16th Apr 18
Bombs, Missiles and War – What to Expect Next from the Stock Market - 16th Apr 18
Global Debt Bubble Hits New All Time High – One Quadrillion Reasons To Buy Gold - 16th Apr 18
Will Bitcoin Ever Recover? - 16th Apr 18
Stock Market Futures Bounce, But Stopped at Trendline - 16th Apr 18
How To Profit As Oil Prices Explode - 16th Apr 18
Junior Mining Stocks are Close to Breaking Downtrend - 16th Apr 18
Look Inside a Caravan at UK Holiday Park for Summer 2018 - Hoseasons Cayton Bay Sea Side - 16th Apr 18
Stock Market More Weakness? How Much? - 15th Apr 18
Time for the Gold Bulls to Show their Mettle - 15th Apr 18
Trading Markets Amid Sound of Wars - 15th Apr 18
Sugar Commodity Buying Levels Analysis - 14th Apr 18
The Oil Trade May Be Coming Alive - 14th Apr 18

Market Oracle FREE Newsletter

Trading Lessons

Crude Oil Prices: Investors Getting Comfortable with New Levels?

Commodities / Crude Oil Sep 15, 2016 - 07:22 PM GMT

By: Nicholas_Kitonyi

Commodities

When the price of oil breached above the $50 level, everyone thought alas, we could be hitting $70 before the end of the year. It was a steady rally that appeared to have turned the tide completely. However, things did not turn out as earlier predicted. Within no time, oil prices dropped again below $50 and have since failed to reach those levels. If anything, there are fresh fears that the price of crude oil could drop below $40 if the production levels remain unchecked.


Based on current trends, the price of Crude oil and that of Brent crude have oscillated within the $40-$50 range for the last five months. This is the longest period the price of oil has showed some level of stability since the grand slump began in 2014. But analysts still believe that in the long-term, the prices will remain choppy as more investors move to trade on short-term time frames.

As illustrated in the chart above, the prices of crude oil and Brent continue to fluctuate in the range of $44-$49, and based on the current price levels, it appears as though a rebound could be on the cards. The price of Crude oil has not surpassed the $50 level since June whereas Brent last hit that mark in mid-August. According to Edward Goodman a senior commodities analyst at NetoTrade, Brent could breach the $50 mark again this month, but Crude oil will continue to trade below that level, potentially till the end of the year.

In general terms, investors appear to be quite happy to play with the Crude and Brent oil prices within this range in the short term. It looks as if initial predictions of for the price of crude oil reaching $60 this year are now unrealistic while dreams of the valued commodity finally returning to historical highs are now all but shuttered for the time being.

So what exactly has pinned investor expectations on oil prices to such low levels?

To begin, oil prices are USD denominated, which means that if the US Dollar Index rises, then the price of oil alongside other commodities like Gold and Silver are under pressure. High USD Index indicates a strengthening US dollar, which means that less units of the USD will be required to purchase a particular commodity than the quantity required before.

As per the chart above, the US Dollar Index has been very choppy since the start of the year, but based on the current trend, it appears to be oscillating within a certain range of 94-96 points. This shows some bit of stability, which again suggests that the USD is steadying against most currencies.

In addition, there has been oversupply of oil in the market with Saudi Arabia and other Oil rich nations refusing to check production. In the US, shale drilling allows producers to easily start and stop production of oil depending on market conditions and again, this has put pressure on oil prices leading to the current levels. If the process of starting and stopping production was highly expensive to shale drilling companies, then they would think twice before oversupplying the market with the commodity.

The other thing that seems to be affecting oil prices is the anticipation of another US interest rate hike. High interest rates make income generating assets more attractive to investors than commodities. Crude oil being one of the most popular commodities in the market is highly affected by the current situation. This has reduced investor expectations on the price of oil going higher than the $50 level and in the process increased short-term trading activity as compared to long-term trading. The price remains significantly choppy thereby making it hard to predict long-term movements.

Conclusion

In summary, the price of oil appears to be pegged within the range of $40 to $50 and investors also seem to have accepted those levels as the ideal targets for this year. Nonetheless, there are those who fear that the price of crude oil could drop below the $40 level especially if the US Federal Reserve Committee announces another rate hike before the end of the year.

The bottom line is that the price of oil faces more than just the one common obstacle of oversupply. The US Dollar Index appears to suggest that crude oil prices could remain pegged at the current level for the foreseeable future whereas a rate hike could stir things up a bit.

By Nicholas Kitonyi

Copyright © 2016 Nicholas Kitonyi - All Rights Reserved Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and utilising methods believed to be reliable, but we cannot accept responsibility for any losses you may incur as a result of this analysis. Individuals should consult with their personal financial advisors.


© 2005-2018 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in

6 Critical Money Making Rules