Crude oil price
The Crude Oil price is trading at a five-week high this morning as the Gulf Coast struggles to get back to full production capacity. Even though Crude has rallied nearly 15% in the last three weeks, and the delta-variant could cause demand issues, banks expect much higher Oil prices. Bank of America even outlined one scenario that could drive the crude oil price to its highest level since 2014.
Although BoA acknowledged several potential bearish factors, such as increased Iranian output and a Chinese debt crisis, the bank says climate is the key.
“weather is quickly becoming the most important driver of energy markets. If the winter turns out to be much colder than normal, global oil demand could surge by 1 to 2mn b/d. Under this scenario, the oil market deficit this winter could easily exceed 2mn b/d and our $100/bbl oil target for the middle of next year could quickly be rolled forward six months.”
And even though we may not see weather conditions that support the price, the message is clear-Oil is vulnerable to supply/demand imbalances. Furthermore, after a brief hiatus, commodities are once again red-hot. Aluminium has jumped to a 13-year high in the last few days, Zinc is doing the same, and spot Uranium has exploded. This adds more fuel to the inflation fire and increases the bull case for owning commodities. This, in turn, could see capital finding its way into energy products, creating an additional tailwind for the crude oil price.
The daily chart shows that front-month Nymex WTI futures have broken above a descending trend line at $69.75. Furthermore, the breakout has also cleared the 50 and 100-day moving averages at $69.68 and $68.86, respectively.
This is clearly a constructive development and should put crude on a path to the 30th of July high at $74.23. Above that, 2021’s record price of $76.22 looks under threat.
The immediate bullish outlook depends on the Crude oil price maintaining the trend breakout and staying above the moving averages. Therefore, if the price drops below $68.86, it will invalidate the positive price call.
For more market insights, follow Elliott on Twitter.