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Oil: Is It Different This Time?



  • Crude oil has traded in a range of roughly $40-$55 a barrel for the last year and a half, however, has failed to breakout on several occasions.
  • The supply, demand dynamic appears increasingly more positive for oil, as major producers implement production cuts and the world economy continues to expand.
  • Recent inflation data implies that we could see higher gas, heating oil, and other fuel related costs going forward, thus a higher crude oil price as well.
  • A technical analysis suggests that crude oil appears to be on the cusp of a major breakout, as several technical indicators have turned decisively positive.
  • The combination of numerous favorable fundamental elements coupled with a compelling technical setup, implies that oil and oil related trading vehicles are attractive buys at this juncture.

Source: investing.com

Crude oil has been on a roller coaster ride over the past few years, ranging in price from about $110 per barrel, all the way down to $26 a barrel. Over the last year and a half oil has traded in a relatively narrow range of about $40 and $55. Oil has made several attempts to break out of this pattern, yet every time just when it seemed like the black gold was poised to move higher, it got sold off, back down to the lower end of the range.

Well, nothing lasts forever and with crude oil testing $55 once again, this time it really does look different, as this trading range appears to have exhausted itself. With the materialization of favorable fundamental developments pertaining to crude oil, and a very attractive technical setup, a breakout to new highs appears increasingly likely.

The Supply and Demand Dynamic

The supply and demand phenomenon appears to be the most prevalent price moving factor in oil markets today. And demand for oil appears to be gaining momentum, as worldwide demand grew by 2.3 million barrels per day, or by 2.4% in the second quarter of 2017, higher than previously expected by the IAEA. The IAEA now sees oil demand increasing by 1.6 million barrels or 1.7% for the full year in 2017, and is expecting growth to continue in 2018, with demand increasing an additional 1.4 million barrels, or 1.4%.

The world economy is expanding, as growth is robust and is expected to continue. This year, the world GDP is expected to increase by 4% from $75.278 trillion to $77.988 trillion. Moreover, next year’s growth is projected to be around 5%, expanding the world’s GDP to $81.962 trillion. With this kind of growth in the world economy it is probable that the IAEA’s

This article was written by

Victor Dergunov profile picture
The #1 Service For Diversified Portfolio Profits

Hi, I'm Victor! It all goes back to looking at stock quotes in the old Wall St. Journal when I was a kid. What do these numbers mean, I thought? Fortunately, my uncle was a successful commodities trader on the NYMEX, and I got him to teach me how to invest. I bought my first actual stock in a company when I was 20, and the rest, as they say, is history. Over the years, some of my top investments include Apple, Tesla, Amazon, Netflix, Facebook, Google, Microsoft, Nike, JPMorgan, Bitcoin, and others.

Analyst’s Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

We own stock in certain names in the oil services sector

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