Energy

Will the Jump in Crude Oil Prices Last?

186723229
Thinkstock
The spot price for October delivery of West Texas Intermediate (WTI) crude oil settled up more than 10% on Thursday and traded up about 3.5% more in the late morning on Friday. The price of WTI returned Thursday night to its closing price of 10 days earlier.

The issue, of course, is whether the bounce is just that or if it indicates a reversal in the fortunes of crude oil and is the first step in a climb back from the depths (below $38 a barrel) to around $60, where it sat for most of the first six months of this year.

The recent upturn has been attributed to at least three causes that we have seen. First, the larger-than-expected reading on U.S. GDP growth, as well as other positive signals on the strength of the economy. Second, a slowdown in exports from Nigeria. Third, a report that Venezuela is pushing for an emergency meeting of OPEC to adopt some response to the collapse in crude oil prices.

The one to focus on is the third. There is essentially no chance that OPEC will do as Venezuela has asked. Now that the cartel has adopted the market share over price strategy, it cannot change horses. If it were to cut production in an effort to lift prices, U.S. producers could and would move fast to fill the gap.

And the United States probably would have to battle Russia for the honor of making up any demand not covered if OPEC were to cut production. Some oil savants think that Russia could be persuaded to cut production as a gesture of solidarity or something. Far more likely is that Russia, with its long history of going after market share whenever possible, would try to increase production to make up a shortfall in supply.

ALSO READ: Analyst Says Do Not Wait for Oil Bottom, Buy Quality Large-Caps Now

One other factor to keep in mind is that China has been buying crude at these low prices as the country builds its strategic reserves. Now that the country has found other uses for its cash — providing liquidity to its equity markets, for example — it may decide to delay further purchases if the price increases too much. Even China does not have inexhaustible access to cash.

After touching an intra-day high of just over $45 a barrel, WTI traded at around $44.40 just before noon on Friday. That is still a gain of more than 4%, based on Thursday’s settlement price.

Take Charge of Your Retirement In Just A Few Minutes (Sponsor)

Retirement planning doesn’t have to feel overwhelming. The key is finding expert guidance—and SmartAsset’s simple quiz makes it easier than ever for you to connect with a vetted financial advisor.

Here’s how it works:

  1. Answer a Few Simple Questions. Tell us a bit about your goals and preferences—it only takes a few minutes!
  2. Get Matched with Vetted Advisors Our smart tool matches you with up to three pre-screened, vetted advisors who serve your area and are held to a fiduciary standard to act in your best interests. Click here to begin
  3. Choose Your  Fit Review their profiles, schedule an introductory call (or meet in person), and select the advisor who feel is right for you.

Why wait? Start building the retirement you’ve always dreamed of. Click here to get started today!

 

Thank you for reading! Have some feedback for us?
Contact the 24/7 Wall St. editorial team.

AI Portfolio

Discover Our Top AI Stocks

Our expert who first called NVIDIA in 2009 is predicting 2025 will see a historic AI breakthrough.

You can follow him investing $500,000 of his own money on our top AI stocks for free.