Crude Oil: Here We Go Again…
In case you haven’t noticed, the price of crude oil is lunging towards $100 a barrel.
And since an important technical resistance area was surpassed late last week, the commodity could be on the verge of a major price breakout.
Let me show you what I mean…
As you can see, crude just broke through the $97.50 trend line (red line). This area of resistance has held oil prices back since September 2012. Now that crude is above that level, it will make it easier for bulls to push the US benchmark price to $100- and possibly higher.
But here’s the thing…
Oil is moving upwards in the face of poor supply/demand fundamentals.
In fact, underlying pricing metrics for US crude are overwhelmingly bearish right now. Last week’s US EIA inventory report once again revealed oil stockpiles are still sitting near multi-decade highs here in the US.
What’s more, the International Energy Agency (IEA) just revealed that OPEC production would likely exceed demand in the second half of 2013. European oil demand remains weak while China is growing at its slowest rate in years.
As a result, OPEC will only need to produce an average of 29.8 million per day in the second half of 2013. That’s 1.1 million barrels a day less than what the organization pumped in May.
As a result of all these factors, oil prices should be easing- not accelerating higher.
However, all it takes is one scary headline to make fundamentals irrelevant…
And like every other time oil has run over $100 a barrel in recent few years, Middle East uncertainty is behind the move.
This time it’s the civil war in Syria. Late last week the US Government announced they’re ready to supply weapons to Syrian rebels. The US is making this move because the Syrian Government has reportedly used chemical weapons. As you may know, the use of chemical weapons is outlawed under international treaty, also known as the Geneva Protocol.
No doubt about it, things are going from bad to worse in Syria.
But here’s the deal…
Syria is not a big oil producing country.
As a matter of fact, the war-torn state produced approximately 380,000 barrels per day before the civil war started in 2011. And now that Syria is under international sanctions, greatly reduced production isn’t even making it into global markets.
So why the run-up in oil prices?
It all comes down to Iran…
Iran has long been a thorn in the side of the international community with their nuclear ambitions. The US and other western governments have tried without success to put a stop to their nuclear progress.
And since Iran is a supporter of the Syrian government, there’s a growing worry that US involvement will lead to a bigger conflict in the region.
The whole situation is extremely complicated…
But as far as oil is concerned, it’s fairly simple- bulls will retain control of this market until there’s a resolution to the situation. And unfortunately, it could be a very long time before that happens.
Bottom line…
Watch for WTI, the US oil benchmark price, to break above $100 as the Syrian crisis escalates.
Stay tuned to Commodity Trading Research for additional analysis and profit opportunities!
Until Next Time,
Justin Bennett
