Watch Oil For Signs Of Where Things Are Going

avatar

Oil is still one of the most precious commodities we utilize. Make no mistake about it, despite the increase in renewable energy, we still consume a lot of fossil fuel and will continue to do so for the next couple decades. Oil is simply in too many products and the thirst for more energy is growing at an exponential rate.

We are likely to see even great growth going forward as technological advancements finally kick in. This could still be a few years down the road as global economic weakness is still with us. Contrary to many of the optimistic reports about the economy re-opening, there still is a lot of global weakness.

Presently, things are being smoothed over by a global shortage of, well, just about everything. Since aspects of the global economy were shut down anywhere from 3-12 months, supply chains all over the world were completely upended. This is appearing now in higher prices, component and commodity shortage, and some dire situation regarding food in some areas.

This means we could be in for a rough ride.

A challenge with shortages is they eventually resolve themselves. In the oil sector, this is solved by pumping more.

Since the price on the futures market went negative last May, the price of oil shot almost straight up.

oil.png
Source

We saw a reverse in the glut of oil that the world was operating under at the beginning of 2020. In spite of demand dropping, the rig count was reduced at an even faster rate. The industry did a good job of clearing a lot of the excess out over the past 12 months.

This has people looking for this rally to continue. However, that is presuming some things that might not be realistic.

To start, the economy is not necessarily going to carry through on its demand growth throughout the second half of the year. Yes, oil demand picked up since the lockdowns began. However, many feel we are in a "new normal", one that includes working from home as much as going to the office.

We see a lot of articles discussing how rush hour traffic times are a lot less congested. This is due to less cars on the road. This all equates to less gasoline consumed.

Another area that is tricky is that we are already seeing light demand in Asia. With another COVID outbreak in India as well as weakness in Japan, demand is showing signs of weakening. This does not bode well for the further path upward.

Finally, while not pertinent to the second half of the year, the ministers from the oil producing countries known that if prices run up too high, for too long, alternative measures are taken by consumers. This means that people start to reduce their demand by altering their behavior.

Regardless of what takes place, oil is still a bellweather for the economy. If oil demand is soft, we know the economy is in trouble. As the economy suffers, oil demand gets even softer. It becomes a swirling cycle like a toilet flushing.

Of course, if prices head too high, that alone is enough to crush the economy, eventually pulling then down again. We learned just before the Great Recession how the world cannot handle $140 a barrel oil. While the antic of Wall Street obliterated the economy, it might have just sped things. There was no way that $4.50-$5 gasoline prices were going to be sustained. Eventually, as that filters through to all aspects of the economy, things start to collapse.

With oil, the solution to high prices if often high prices. It becomes a self-fulling prophecy. This is something those in the oil industry are well aware of. It is why you never see them talking about trying as much for their product at they can. They know there is a point where high prices will result in collapse.

Looking at the chart, I would watch the 2018 high with a bit of an overshoot as a key. This means the $80 level could be in the cards. Keep in mind that we might be witnessing a multi-year commodity run so this could go on for a while.

If the price of oil takes that out, we will see a push towards $100. Then it becomes a question of how much damage that does to the economy.

And do not forget, with oil, the frackers are suddenly very profitable at these prices. Over the last year, they shut down operations in hopes of staying in business. Now, with oil's run up, they could start pumping again.

This would also affect the global supply and all the cuts that took place with OPEC and Russia.

My prediction is that since stimulus appears to be on the chopping block, we will see economic softness in the second half of the year. This could end up really affecting the price of oil and other commodities as demand weakens more than they expect.


If you found this article informative, please give an upvote and rehive.

gif by @doze

screen_vision2025_1.png

logo by @st8z

Posted Using LeoFinance Beta



0
0
0.000
10 comments
avatar

pixresteemer_incognito_angel_mini.png
Bang, I did it again... I just rehived your post!
Week 60 of my contest just started...you can now check the winners of the previous week!
4

0
0
0.000
avatar

Congratulations @taskmaster4450le! You have completed the following achievement on the Hive blockchain and have been rewarded with new badge(s) :

You got more than 26000 replies.
Your next target is to reach 26500 replies.

You can view your badges on your board and compare yourself to others in the Ranking
If you no longer want to receive notifications, reply to this comment with the word STOP

Check out the last post from @hivebuzz:

Feedback from the June 1st Hive Power Up Day
Support the HiveBuzz project. Vote for our proposal!
0
0
0.000
avatar

What do you think would be a catalyst to bring oil to $100? I don't think it will above that though.

Posted Using LeoFinance Beta

0
0
0.000
avatar

The Middle East still has a great deal of influence on the oil traders. A lot of turmoil there could send the price of oil flying, especially if somehow supply chains get disrupted again by conflict.

I think there is economic weakness in the second half that many are not factoring in. We will see if it comes to pass. If that is the case, then oil is going to be facing some headwinds in the medium term.

Posted Using LeoFinance Beta

0
0
0.000
avatar
(Edited)

Oil is probably going down, at least the oil companies will I think. The world is shifting into renewable energy, I liker companies like CLNE Clean Energy Now. I guess maybe there could be a short term recovery going on with oil as the world re-opens, but in the long run old gas powered cars getting the boot in NY to CA!

0
0
0.000
avatar

Do you know what the worst is?

Here in Brazil, gasoline is very expensive. And this is what we have a "Brazilian company" that is self-sustainable in oil production, but we pay more than 50% in tax per liter of gasoline and that adds up to our currency devalued 5x against the dollar.

On average, I have to pay R$ 5.50 per liter of gasoline. To have a base, the minimum wage here is on average R$1,000 (not counting discounts)

Posted Using LeoFinance Beta

0
0
0.000
avatar

It is sad what takes place in many places around the world. What you are describing goes far beyond supply/demand issues.

Governments do more to starve people than anything else. It is why they need to be eliminated.

Posted Using LeoFinance Beta

0
0
0.000
avatar

Russia is the happies when the dinosaur juice and other dinosaur products are high because their economy was bad even before the pandemic

Posted Using LeoFinance Beta

0
0
0.000
avatar

I think oil is soon going to be a commodity of the past. Countries that depend solely on their gains from crude oil sales are going to die dishonourable deaths.

During the global lockdown last year, there was almost no need for crude oil and these countries suffered terribly. The rise in electronic vehicles will also shorten the use of crude oil and the world will evolve beyond PMS and other products of crude oil. It's soon and unavoidable

Posted Using LeoFinance Beta

0
0
0.000