Oil Prices Rally to $70 per Barrel
Oil prices are rallying toward $70 per barrel. Both the Canadian and U.S. economies are performing well, but sustained increases above these levels could pose troubles for the two economies.
The last time oil prices were at $70 per barrel was in November 2014; back then though, oil prices were cratering and eventually hit a bottom of $26 per barrel in early 2016. That precipitous drop was brought on mainly by OPEC and its mission to saturate the world in unwanted oil.
Plunging oil prices caused U.S. and Canadian oil producers to cut workers, close wells, cease exploration activities, and in many cases, declare bankruptcy. Low oil prices also routed stocks, bonds, and negatively impacted the broader economy.
And the pain is still being felt. Oil prices may be up 30% since the start of 2017, but the corporate vacancy rate in Calgary, Alberta—the mecca for oil and gas headquarters—is near a record 30%.
But $70 oil in 2018 is a lot different than $70 oil in 2014. The global economy is chugging along, as are the U.S. and Canadian economies. Oil prices are up more than 60% from last summer, and North American producers are exporting more crude oil than ever.
Many believe that oil near $70 per barrel could be a boon to the Canadian and U.S. economies, but rising oil prices have never exactly been a long-term boon to the economy. Should crude prices continue to rise it could trip up economic growth.
That’s because higher prices for gas and other energy and consumer products act as a tax, pushing inflation higher and putting pressure on the Bank of Canada and U.S. Federal Reserve to raise their key lending rates more aggressively.
Higher interest rates are designed to help cool down an overheated economy. This would create headwinds for the stock market, which has been nothing short of unpredictable and volatile in 2018.
Significantly higher oil prices is a real possibility in 2018, with rumors that Saudi Arabia wants to dramatically cut production in order to send oil prices back to $100 per barrel. If prices do get that high, it could be the start of the next economic downturn, if history is any indicator.
Oil prices have surged past $100 per barrel before, but it has never sustained those lofty levels for very long. In 2008 oil hit $150 per barrel; it was followed by the financial crisis and Great Recession.
Between 2011 and 2014, oil prices frequently topped $100 per barrel, and then the U.S. shale market flooded the market and helped send oil prices tumbling.
Should Saudi Arabia want oil prices to hit $100 again, it could lead to another bust.
Those are just rumors right now though. In the near-term though, oil prices could surge on the heels of the U.S. leaving the Iran nuclear deal.
Back in January President Trump set May 12 as the deadline for the U.S., European Union, and Iran to strengthen the nuclear deal. If it doesn’t, the U.S. sanctions against Iran that were lifted, will kick in again.
Renewed U.S. sanctions would prop up oil and gas prices as Iran’s daily oil production is taken off the global markets.
For commodity traders, the big question is, should they go short or long on oil?
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Oil prices have rebounded since early 2016 and been rallying since June 2017. There are a lot of factors that could send oil prices sharply higher in the near term; there are also a number of reasons why oil prices could reverse its current trajectory. Whether you’re long or short on commodities and the stock market, the professional traders at Learn-To-Trade.com can help investors profit no matter what the market sentiment is.
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Photo Credit: iStock.com/Yaroslav1
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