Why oil continues to rise

Oil has risen from a seven-year high after traders and investors reacted to OPEC +’s decision to keep supply tight even as the world struggles with the natural gas crisis.

Futures in New York rose as much as 2% on Tuesday, approaching the key, psychological level of $ 80 per barrel. At a meeting of OPEC + on Monday, Saudi Arabia and its partners announced a modest increase in production of 400,000 barrels per day in November, surprising many analysts, as the jump in gas prices creates the prospect of rising demand for petroleum products this winter.

OPEC+’s surprising decision to keep production tight pushes prices up as traders and investors assess prospects for increased demand in the coming months due to rising natural gas prices, positioning black gold as a potential alternative to electricity generation. Adding the entry into the winter season, the influx of demand from the natural gas market becomes even more significant.

Against this background, the decision of OPEC + is extremely surprising, indicating only one thing – the organization wants to see oil at even higher levels.

“There’s no room for system errors,” said Phil Flynn, senior market analyst at Price Futures Group Inc. “If a cold winter comes, these prices could rise dramatically.”

Both US and global oil benchmarks rose this month as natural gas prices rose, boosting the prospect of greater demand for crude oil for electricity generation.

Meanwhile, various major instruments in the oil market are also showing signs of strength. The so-called Dec.-Red-Dec. WTI Crude oil spread, a favorite trade of a number of hedge funds, exceeded $ 7.50 per barrel this week – the strongest level since 2019. here.

One of the prospects for the oil market includes the possibility of changing the OPEC + coalition decision before November, as the increasingly tight market forces producers to reconsider their strategy.

“They will meet again, eventually, if not before November, to try to put more oil on the market,” said Ed Morse, head of Commodities Research at Citgroup. “Almost every analyst on the planet has a different view than the OPEC secretariat has of demand growth over the next two months.”

The price broke out through the high of 2018 and if the momentum loses steam we could see a pullback and a retest of the 2018’s high.

 Junior Trader Nikolay Petrov


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