Crude Nearly At $80: Is The Oil Rally Solid?

Let’s face it. We are all getting excited about the oil rally. The market has been showing us prove day after day that this trend is here to stay.

But the thing is… after such a long time of not seeing high energy prices, we are feeling a bit skeptical. And despite the fact that’s totally normal, we cannot let emotions take control of our trading. So, is the oil rally solid or not?

According to the Organization of the Petroleum Exporting Countries, there is no doubt about it. They expect oil prices to move above the $80-per-barrel mark in the near term based on two basic drivers: geopolitical concerns and crude supply levels.

Geopolitics have been driving prices up and down in the last few months and will most likely continue to do so in the future. At this moment, market participants are focusing on two different nations: Iran and Venezuela.

Iran and Venezuela could soon face a new batch of sanctions by the United States. Iran - after the Trump administration pulled out of the nuclear deal, and Venezuela - as President Nicolas Maduro got re-elected in fraudulent elections over the weekend amid a deep economic crisis.

On a second level, crude supply levels. While the oil market is about to reach its balance, OPEC leaders are not in a rush to increase production. The cartel’s oil cuts are expected to run until the end of 2018 and an extension has not been yet discarded.

In this context, US President Donald Trump recently accused OPEC of “artificially” increasing oil prices, adding pressure on producers to elevate output and counteract the group’s initiative.

OPEC and a group of independent producers are keeping production levels down by about 1.8 million barrels per day. Oil ministers will hold a meeting on June 22-23 to review the policy.

Our view

Analysts from Fort Financial Services believe the current situation is indeed “artificial”, but based on solid grounds. In the short term, we could expect an upward extension above the $80 mark.

Breaking that psychological level will open the gates for further growth. However, it would also generate the need for profit taking, which is associated with a correction.

FortFS