The price of oil, as with any commodity, is largely determined by the most basic economic principles of supply and demand.
Global demand for oil, despite a looming trade war and the growth in electric vehicles and hybrids, remains strong.
Unfortunately for oil bulls — but fortunately for consumers at the pump — the global supply of oil has never looked stronger.
As Bloomberg reported this week, analysts had been expecting a 4.1 million barrel drop in US crude supplies. Instead inventories rose by 629,000 barrels.
We’re not sure which analysts Bloomberg surveyed. But their expectations on US crude inventories was off, to the down side, by more than 4.7 million barrels.
That’s one heck of a miscalculation.
You can see the continuing slump in WTI in the following chart, bringing it below the 50–day moving average:
How to pick a bearish oil market?
When it comes to technical analysis, a good rule of thumb is any price drop below the 50-day moving average is a bearish sign. And the bearish signs for crude just keep adding up.
OPEC’s last round of reduction cuts, back in November 2017, managed to send the crude price higher. In fact, Brent crude hit three-year highs just last month. That spike was aided by output losses in Venezuela and fears over the impact of new US sanctions on Iran.
You’re likely aware that Saudi Arabia and Russia (not an OPEC member) have agreed to up production to counter any losses from Iran.
What you may not know is that OPEC’s days itself may well be numbered.
As Bloomberg reports, two Democratic and two Republican senators have introduced legislation which would allow the US government to sue OPEC members for violating antitrust laws.
‘Lawmakers in… the House of Representatives, already introduced a version of the “No Oil Producing and Exporting Cartels Act,” or NOPEC, bill in May. Congress has discussed various forms of NOPEC legislation since 2000, but both George W. Bush and Barack Obama threatened to use their veto power to halt it from becoming law. The risk for the Organization of Petroleum Exporting Countries is that U.S. President Donald Trump may break with this precedent.’
We’d say there’s more than just a ‘risk’ of Trump breaking precedent and supporting this law. He’s already taken to Twitter on numerous occasions to lambast the cartel. And he’s not one to shy away from a fight.
As for those futures traders still betting on US$100 per barrel oil to make a comeback this year? Well, anything can happen. But we’d be placing our bets in the other direction…below US$60.
PS: If you think your cash is safe in the bank …think again. Find out what you could do to protect your cash and financial privacy here.