Is $100 Oil Within Reach?

Source The Ghana Report

A few weeks ago, when WTI crude was trading just below $80, I wrote here that I was about to break with my usual, contrarian trading style and establish a long-term long position in oil after a gain of around ten percent since the beginning of February.

Normally, if something has climbed that far that fast, I start to look for a pivot point; a level at which a correction or consolidation will come. Last month, however, the more I looked at the fundamental factors influencing oil, the more convinced I became that it was heading higher still. I was right, but the question now that we are through the psychologically important $85 level is, “what next?”.

As I said, my natural inclination would be to sell something when the three-month chart looks like the one above. Commodities tend to correct, not least because of the invisible hand that comes from the relationship between price, supply, and demand. When the price of a commodity climbs consistently like that, it encourages increased supply and damps down demand, pushing prices lower.

However, the relationship is not set in stone, nor is it immune to other influences; and those other influences suggest that despite a strong start to the year, oil is still heading higher.

The effect of demand for oil on price is not absolute; it is relative. If, for example, demand is recovering from a low and normalizing as it is now, it is less price sensitive than it might otherwise be.

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