Oil is nicknamed ‘Black Gold’ for a reason.
And right now, oil is nearing a crossroads. Last month saw the price of oil rise as much as 40%, but is that the start of a rally or a precursor for a bust?
Let me make sense of it all for you, and show you which directions all of these hints are pointing…
As I mentioned, benchmark US oil prices jumped last month. But why?
Violence in the Middle East, signs that domestic crude production was topping off, and a weaker dollar all mixed together to create stronger-than-expected demand.
And that pushed the price of oil up from the 6-year lows that were reached in March.
Just last week, the price per barrel of oil crept over $60 on the New York Mercantile Exchange, so the question now is whether or not that high of a price can be sustained.
To that point, most people expected oil production to slow down significantly, especially in the U.S., as the number of rigs drilling for oil here dropped off from over 1,400 to about 650 since the beginning of the year. However, U.S. oil output has remained steady.
Plus, OPEC, the Organization of the Petroleum Exporting Countries, has been producing above its target output and expects to keep up its current numbers for the foreseeable future.
In addition, the rising strength of the U.S. dollar should add on even more pressure to those high oil prices.
So while demand certainly propelled the price of oil higher last month, many signs are pointing toward decreasing demand and/or increasing supply. That doesn’t bode well for the price of oil staying above $60 a barrel.
In fact, Goldman Sachs expects prices to $45 per barrel by October.
In the immediate future, prices should hold relatively steady within several dollars of its current range due to summer-driven demand. But fall could be a big opportunity for a hefty dip for oil prices…
