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West Texas Intermediate (WTI) prices rose 1% on Friday, capping a 5.1% week and a 13.9% month. The $44-$46 price band has acted like a chasm that traders have been unable to vault but the black gold will be back above the $50 level, according to FXStreet’s Analyst Joseph Trevisani.

Key quotes

“It is not whether a recovering global economy can drive prices back above $50. It will. One question is timing. When will traders have sufficient confidence that the recovery is nearing to speculate on prices? Or to put it more directly, when can we be sure that the pandemic will not derail the economy yet again. A second question is how far can prices rise with idle fracking fields in North American waiting for activation? The answer is the pricing and cost structure has been permanently altered by vast new supplies of crude oil. Barrel prices above $75 are likely a thing of the past.”

“The contrast between US equity averages which have topped their pre-pandemic records and West Texas Intermediate is striking. Price action in both markets discounts the future. If you think the economy is headed for a boom once the pandemic loosens its grip, the demand for crude oil will rise as surely as equity profits.”

“Fracking has permanently increased the supply of crude oil the industry is able to produce. North American shale drillers have become the swing producers in the global market. They are unrestricted by government quotas in the US or Canada. Their restriction is profitability. As the market adage, goes-high prices are their own cure.”

“With the Federal Reserve projected in its own estimates to be on hold until the end of 2023 the dollar next year will depend on US economic growth for support. Low energy prices are a boon to any economy. For the world’s largest user of energy, the proportional advantage is substantial.”

 

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