Oil is Back at $50

Oil is Back at $50

The futures price of a barrel of crude oil pushed up near $50 in trading today. Some analysts, including myself, had thought that we’d see oil prices fall to around $25 per barrel by the winter, but this may no longer be the case. There are a few reasons why $50 oil might be here to stay.

The first reason, and perhaps the most important, is that the US has begun pulling back on oil manufacturing. Until the latest report, most analysts were operating under the assumption that US oil output was as strong as it had been in years. In fact, before a recent report by the USGS, American oil production was at record levels.
We know now that production has been cut, and that shale oil resources are currently going untapped because of the low price of crude.

The second reason that we’re seeing $50 oil right now is the geopolitical situation in the Middle East. Russia has just started a bombing campaign in Syria, and that’s causing regional uncertainty over the future of oil production in the surrounding states -- which are some of the most oil-rich countries on Earth.

The final reason that oil prices are dragging is the weakening US dollar. Although it’s stronger than most other currencies around the world, inaction by the Fed has led to a dollar that isn’t as strong as it could be. That means oil gets more expensive per barrel, relative to the value of a dollar.

Regardless of the reasons, we could see oil stay at $50 per barrel for quite awhile. There’s also an established support point at $45, so it’s becoming less likely that oil will take a major dive down to $25. However, Iran is primed and ready to sell their oil as soon as sanctions are lifted, which is coming up on the horizon. The situation is fluid, and so is the price of oil.

Concerns Over China Pushing Back Rate Hike

According to the latest released minutes of the previous Fed meeting, worries over China and Europe are causing them to hold back on a rate hike. "We didn't raise the rate in September because we wanted to take time to appraise what had happened in China in particular," IMF co-chair Jeff Fischer told reporters at the IMF's annual meeting in Lima, Peru.

Fed chairwoman Janet Yellen has said that the Fed will likely raise rates before the end of the year, although many analysts insist that the window for a rate hike has passed. However, a sluggish recovery and international monetary problems are lessening the possibility that it will happen.
Published on Oct 9, 2015
By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2016. Content published with author's permission.

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