Hello everyone…
As I write this article on 2nd June 2021, Brent Crude is trading near $71 per Barrel. There has been a rise in crude oil in the last 2 months and is in an uptrend.
So, what is your expectation on the price move? Will it reach $100 per barrel?
Well, you see nothing is impossible in trading however, if at all it reaches 100 dollars it will require real demand push to sustain at those levels. At the moment I don’t see customers desperate to procure oil from the producers at any cost. The price is a function of demand and supply and the supply is controlled by OPEC and allied nations.
On 1st June, the OPEC+ has taken a decision to gradually ease oil supply curbs. It has been estimated that the additional barrels produced will be absorbed as the recovery continues in the US and Europe. The vaccine rollout gathering pace around the world will lead to further rebalancing of the global oil market.
The decision of OPEC+ was on the expected lines hence I believe it is already factored in the current price. On the future prospects the increase in oil exports, expansion of existing oil fields by Norway, Arab countries, Russia, etc will keep the supply coming and the price in check. OPEC has raised production in the past and will do so again if the group sees its market share threatened by U.S. producers. Iran and the U.S. may make another nuclear deal, and remove sanctions on Iranian oil. This will likely depress prices.
There is a search for alternate fuel and the countries are shifting their focus on green and renewable sources slowly phasing out fossil fuels. Countries like India where the import bill is huge, are committed to reducing dependency on fossil fuel and are promoting EV and solar projects.
Although some of the above will be achieved in long term and will not significantly impact the demand in short term but clearly the importing nations are reducing their dependence on fossil fuels and therefore the demand supply will change over a period of time. Even though the global rollout of the COVID-19 vaccine and subsequent opening of economies raise the demand for oil in the local markets it will require huge demand to reach the price of $100 per barrel and sustain at those levels.
I am therefore of the view if the price reaches 85 dollars, it will be an excellent opportunity to go short on this commodity.
Hope you have found this article useful. Happy Investing!
Warm regards,
Mayank Talwar