Best of the Week
Most Popular
1. Five Charts That Show We Are on the Brink of an Unthinkable Financial Crisis- John_Mauldin
2.Bitcoin Parabolic Mania - Zeal_LLC
3.Bitcoin Doesn’t Exist – 2 - Raul_I_Meijer
4.Best Time / Month of Year to BUY a USED Car is DECEMBER, UK Analysis - Nadeem_Walayat
5.Labour Sheffield City Council Election Panic Could Prompt Suspension of Tree Felling's Private Security - N_Walayat
6.War on Gold Intensifies: It Betrays the Elitists’ Panic and Augurs Their Coming Defeat Part2 - Stewart_Dougherty
7.How High Will Gold Go? - Harry_Dent
8.Bitcoin Doesn’t Exist – Forks and Mad Max - Raul_I_Meijer
9.UK Stagflation Risk As Inflation Hits 3.1% and House Prices Fall - GoldCore
10.New EU Rules For Cross-Border Cash, Gold Bullion Movements - GoldCore
Last 7 days
Worse than Watergate - Release the Memo - Investigate Uranium One - 23rd Jan 18
CAT Stock Bouncing after JPM Upgrade How High and How Long Can This CAT Jump? - 23rd Jan 18
Why Banks Will Be Slammed In The Next Crisis—And That May Be Good News - 23rd Jan 18
Medicare Premiums Are A Shared Pool - Coming Changes That Will Transform Retirement - 23rd Jan 18
Charged Atmosphere of Heavy Police and Security Presence at Sheffield Street Tree Felling Protests - 23rd Jan 18
Pension Crisis And Deficit of £2.6 Billion At Carillion To Impact UK - 22nd Jan 18
Two Factors for Gold That You Don’t Want to Miss - 22nd Jan 18
Why You Must Own Silver in 2018 - 22nd Jan 18
This Could Be The Hottest Mining Stock Of 2018 - 22nd Jan 18
Stock Index Trend Trade Setups for the SP500 & NASDAQ - 22nd Jan 18
Stock Market Deceleration / Distribution - 22nd Jan 18
US Markets vs Govt Shutdown: Stock Markets at all time highs - 22nd Jan 18
Land Rover Discovery Sport - 1 Month Driving Test Review - 22nd Jan 18
Why should you use high-quality YouTube to mp3 converter? - 22nd Jan 18
Silver As Strategic Metal: Why Its Price Will Soar - 21st Jan 18
Stocks, Gold and Interest Rates Three Amigos Ride On - 21st Jan 18
Why Sometimes, "Beating the S&P 500" Isn't Good Enough - 21st Jan 18
Bunnies and Geckos of Sheffield Street Tree Fellings Protests Explained - 21st Jan 18
Jim Rickards: Next Financial Panic Will Be the Biggest of All, with Only One Place to Turn… - 20th Jan 18
Macro Trend Changes for Gold in 2018 and Beyond - Empire Club of Canada - 20th Jan 18
Top 5 Trader Information Sources for Timely, Successful Investing - 20th Jan 18
Bond Market Bear Creating Gold Bull Market - 19th Jan 18
Gold Stocks GDX $25 Breakout on Earnings - 19th Jan 18
SPX is Higher But No Breakout - 19th Jan 18
Game Changer for Bitcoin - 19th Jan 18
Upside Risk for Gold in 2018 - 19th Jan 18
Money Minute - A 60-second snapshot of the UK Economy - 19th Jan 18
Discovery Sport Real MPG Fuel Economy Vs Land Rover 53.3 MPG Sales Pitch - 19th Jan 18
For Americans Buying Gold and Silver: Still a Big U.S. Pricing Advantage - 19th Jan 18
5 Maps And Charts That Predict Geopolitical Trends In 2018 - 19th Jan 18
North Korean Quagmire: Part 2. Bombing, Nuclear Threats, and Resolution - 19th Jan 18
Complete Guide On Forex Trading Market - 19th Jan 18
Bitcoin Crash Sees Flight To Physical Gold Coins and Bars - 18th Jan 18
The Interest Rates Are What Matter In This Market - 18th Jan 18
Crude Oil Sweat, Blood and Tears - 18th Jan 18
Land Rover Discovery Sport - Week 3 HSE Black Test Review - 18th Jan 18
The North Korea Quagmire: Part 1, A Contest of Colonialism and Communism - 18th Jan 18
Understand Currency Trade and Make Plenty of Money - 18th Jan 18
Bitcoin Price Crash Below $10,000. What's Next? We have answers… - 18th Jan 18
How to Trade Gold During Second Half of January, Daily Cycle Prediction - 18th Jan 18
More U.S. States Are Knocking Down Gold & Silver Barriers - 18th Jan 18
5 Economic Predictions for 2018 - 18th Jan 18
Land Rover Discovery Sport - What You Need to Know Before Buying - Owning Week 2 - 17th Jan 18
Bitcoin and Stock Prices, Both Symptoms of Speculative Extremes! - 17th Jan 18
So That’s What Stock Market Volatility Looks Like - 17th Jan 18
Tips On Choosing the Right Forex Dealer - 17th Jan 18
Crude Oil is Starting 2018 Strong but there's Undeniable Risk to the Downside - 16th Jan 18
SPX, NDX, INDU and RUT Stock Indices all at Resistance Levels - 16th Jan 18
Silver Prices To Surge – JP Morgan Has Acquired A “Massive Quantity of Physical Silver” - 16th Jan 18
Carillion Bankruptcy and the PFI Sector Spiraling Costs Crisis, Amey, G4S, Balfour Beatty, Serco.... - 16th Jan 18
Artificial Intelligence - Extermination of Humanity - 16th Jan 18
Carillion Goes Bust, as Government Refuses to Bailout PFI Contractors Debt and Pensions Liabilities - 15th Jan 18
What Really Happens in Iran?  - 15th Jan 18
Stock Market Near an Intermediate Top? - 15th Jan 18
The Key Economic Indicator You Should Watch in 2018 - 15th Jan 18
London Property Market Crash Looms As Prices Drop To 2 1/2 Year Low - 15th Jan 18
Some Fascinating Stock Market Fibonacci Relationships... - 15th Jan 18

Market Oracle FREE Newsletter

6 Critical Money Making Rules

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