If you haven't notice, oil is gushing. No, not a new discovery per se, but by the stock market. To remind you, the market is a forward gage with an eye that envisions six months ahead. I know many have lost a job or work from home. You won't get to see the man on the ladder at the gas station. He is changing the price to a higher number. If you recall, last May, the oil contract reached a multi-year low of $10 per barrel. At that time, the gas station attendant could not find his ladder to lower the price per gallon. He always has this problem. Nevertheless, oil passed its 50-day moving average and 200-day average on the daily chart. It is approaching its 200-day on the weekly chart. Resistance for light, US crude is $50 and for global, Brent, it is $58.67. Last Friday, US crude closed at $46.57. The question that you may ask is why and why now?
EIA
The Energy Information Administration data shows that the global consumption of oil has reached 96 million barrels per day. This is six million below the world usage prior to the pandemic. In the US, we have lowered our imports and at the same time, generated around 12-million barrels of domestic production. With that said, the market sees US production falling as small, domestic firms go belly-under due to the effects of the lockdowns and virus. This is not a problem because other firms could ramp up production to fill the demand. What the market is looking at is a return to economic normalcy. They see the vaccine. They see other nations, especially Asian, resuming their economies. They see more auto sales in emerging markets. They brush off the introduction of electric cars due to many reasons. The cost is high. The reliability is poor. Winter works havoc on electric vehicles. The battery question has not been answered. In addition, the infrastructure to service batteries and long distance has not been answered. The combustion engine still has years to go.
This is why oil is trending up. There are other factors that is helping the outlook and price.
King Dollar
Last March, when the initial fears of the virus became known, the US dollar touched $104, as a safe haven. Then, excessive money printing along with the economic slowdown, revealed structural problems. The dollar began a long decline. It touched its yearly low last Friday at $90.92. The charts indicate that the dollar will find resistance/support at $88. When the dollar declines in value commodities cost more. The market sees that too.
2cd. Opinion?
If you consult Dr. Copper, you will find his fees are up. Last March, the pandemic caused panic in the industry. The price per pound hit a yearly low of $2.00. Now, it is $3.53. The dollar declines, commodities rise.
How about Iron Ore? Last March, it declined to $615 per ton. Now, it is 923 per ton. You can look for gold to feel the effects of this momentum. We have pointed out many times that fiat, central banks hate the strong currency of gold. However, they cannot deny the obvious. When the dollar declines, commodities rise. Prices are also rising for aluminum. Beverage and can goods are facing higher costs due to the higher cost for aluminum. This begs the question, can inflation be far off?
Getting back to oil. The market will reevaluate the price and outlook in January. If the vaccine gets results and it is received favorably, this will strongly lead to higher oil prices. Always keep in focus, the price of the US dollar. If the downtrend continues and new stimulus is added, oil will continue to rise to its level prior to the pandemic. You have an oil stock? You can help? Get out and shop! Enjoy the holidays. Peace.
