Have Crude Prices Risen too Far too Fast?

Oil prices are edging slightly higher today on very light holiday trading volume, but the question is: have prices risen too far too fast?

February WTI crude trades moderately higher today by $0.32 to $47.94/barrel on light volume as we near the end of the year, but where will prices go once we transition into the new year? It all starts with the January 4th OPEC+ meeting where ministers will determine the group’s February oil production after it decided last month to increase January production by 500,000 barrels per day. Russia wants to increase oil production by another 500,000 barrels per day in February to take advantage of the rise in crude oil prices we have seen. Can you blame them? We are up more than $12/barrel since the U.S. election day on November 3rd thanks in large part to certainty about who the U.S. President will be in 2021 and of course on vaccine developments and beginning stages of distribution to immunize us from COVID-19.

As crude oil prices have hit the highest levels since March, the dollar index is trading near 32 month-lows. This is bullish for oil prices since the U.S. Congress has been on a spending spree to help save our economy due to the economic woes COVID-19 continues to create which is diminishing the value of our currency. Therefore, we have had a lot of bullish factors built into the crude price as it knocks on the door of $50/barrel. So, it begs the question, have we come too far too fast? The next catalyst for crude price direction starts with the decision from OPEC+ next week. Remember, they have decided to meet monthly to establish production targets to micro-manage the crude oil price. But Russia, with oil revenue responsible for over 30% of its gross domestic product (GDP), may be key to capping this rally we have seen on prices moving forward if they fight to increase production even further.

 

https://www.houstonchronicle.com/business/energy/article/Russia-s-Novak-Backs-Further-OPEC-Oil-Output-15833438.php

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