Will These Factors Send Oil Prices Spiralling to Under $30 per Barrel?

falling oil priceOil prices may have mounted a strong comeback after hitting a 10-plus-year low under $30 per barrel in February, but the recovery looks like it’s in jeopardy as demand falls on weak economic data, drillers ramp up activity, and outages in key oil-producing areas wind down. This has many calling for crude prices to fall from the current $45 per barrel to at least $36 per barrel.

3 Factors Pointing to Lower Oil Prices

Oil prices are up roughly 65% from a decade low of $27 per barrel in February after a number of production outages (including the forest fire in Fort McMurray, Alberta) ate into the global supply.

But the recovery and broader bullish sentiment for oil prices has stalled. In fact, there is a good chance oil prices could spiral from the current $45 per barrel to $36 per barrel and possibly dip below $30. The following factors could continue to put serious pressure on global oil prices.

  • Brexit Vote and Weakness in the Eurozone: Oil prices stalled after the June 23 Brexit vote undermined financial markets. Investors are worried about how the Brexit vote will impact the U.K. economy. Many believe the Bank of England will need to cut down its already record-low lending rate of 0.5%. One estimate suggests the Brexit vote will sap 100,000 barrels of oil per day off global demand in 2017.1
  • Oil Output Increasing: Despite weak economic indicators from Asia, the eurozone, Canada, Russia, and the United States, oil producers continue to generate record levels of oil. Hundreds of thousands of barrels of oil are beginning to trickle in from Alberta after forest fires crippled output two months ago. Iran is expecting to raise its exports to four million barrels a day. The record-breaking oil supply and record-breaking inventories will see additional fuel as Nigeria and Libya ramp up production. On top of that, the U.S. rig count has been on the rise for the past month. These extra rigs could flood the market with an additional 250,000 barrels of oil per day.2
  • Saudi Arabia Embraces Low Oil Prices: Saudi Arabia is no hurry to see oil prices climb higher. In fact, Saudi Arabia’s energy minister said the oil market was stabilizing and becoming more balanced. This means the world’s biggest oil exporter has no intentions of cutting oil production in an effort to raise global oil prices.3

Going forward, unless there is a serious cut in oil production or there is an unexpected global demand for oil, oil prices will continue to face pressure and trend downwards. The big question is, how low will oil prices go?

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A commodity like oil is a popular way for investors to diversify their retirement portfolio. In addition to buying an oil and gas stock or exchange-traded fund that follows oil and gas prices, a popular way to invest in a commodity like oil (or gold, silver, natural gas, corn, cattle, coffee, etc.) is to buy or sell a futures contract.

Futures trading adds additional depth that you don’t get with stocks. When you buy a stock, you bet it will go up at some point in the future. With futures trading, you speculate on what the commodity will be worth at a specific time and whether it will go up or down.

Unfortunately, a lot of investors avoid futures trading because of the apparent difficulty of predicting the future price movements of an underlying commodity like oil. But studying commodity trading strategies with the licensed professionals at Learn-To-Trade.com will show you how to confidently make profitable trades.

In addition to learning about commodities and futures trading, at Learn-To-Trade.com, you’ll also learn about other proven investing strategies, including stock option trading, stock index trading, and forex trading.

Learn-To-Trade.com also has a unique Lifetime Membership that allows you to re-attend any part of the program you like, as many times as you like. To learn more about Learn-To-Trade.com’s commodity trading courses, contact us at 416-510-5560 or by e-mail at info@learn-to-trade.com.

 

Sources:

  1. “Investors More Bearish on Oil Price Recovery,” The Wall Street Journal web site, July 11, 2016; https://www.wsj.com/articles/investors-more-bearish-on-oil-price-recovery-1468241443.
  2. “Oil ends at two-month low as OPEC output nears 8-year high,” MarketWatch web site, July 11, 2016; https://www.marketwatch.com/story/oil-prices-fall-on-concerns-global-glut-set-to-worsen-2016-07-11.
  3. “Saudi energy minister says oil market is balancing,” Reuters web site, July 10, 2016; https://www.reuters.com/article/us-saudi-enery-al-falih-idUSKCN0ZQ0EY.
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George Karpouzis is the co-founder of Learn-to-Trade and has been personally providing education and mentoring to over 3000 members since 1999. George has been trading in the stocks, options, futures and forex markets using technical analysis since 1986. With the help of advancements in trading technology the Learn To Trade program is now accessible worldwide. His background and passion for teaching brings an invaluable asset to our members. George is constantly striving to improve the program content and develop new strategic relationships for the benefit of the members. Add me to your G+

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