Option Trade Of The Week
Oil Price Continues To Rise
4th May, 2015
Oil prices rose last Thursday to fresh 2015 highs, up more than 30 percent since its low in March, and taking energy stocks with them – crude oil reached $59.40 per barrel in early trading Thursday -- and many of the analysts/oil experts think it's going to continue to move higher.
There are a number of catalyst that have contributed to the rally surge, but one major factor for much of the gains was driven by recent supply numbers that came in lighter than analysts expected (see chart below).
Another factor helping the bullish stance for oil prices is that the U.S. dollar has been retreating from elevated levels. Since commodities prices are denominated in dollars, and the greenback loses value, then a barrel of oil is going to need more of them.
Some analysts see an increase to about $70-$73 per barrel for Brent and $60-$65 for U.S. crude by mid-July. Prices will continue to move higher through to the end of the year, and Brent could go over $80 by December.
This chart displays similarities between the bottoming process now and the bottoming process that was experienced back in 2009.
Another factor that will come into play is when the older wells reach peak production, which means that there should be a significant decline experienced, which will bring about a ratcheting up of the pricing floor as the new supply and demand balances starts to emerge.
Reasonable earnings reports from companies, such as Exxon Mobil and Shell, which were down considerably from a year ago, aren't as bad as everyone thought. This means that the larger companies are showing an ability to bring their spending in line with current crude prices.
Also, the U.S. rig count is at the lowest level since 2010, and if the drilling slowdown continues, it will eventually cause U.S. crude production to decline and shrink the gap between supply and demand in the world's oil markets.
It is also expected that the
U.S. won't lift sanctions on Iranian oil as quickly as expected – another push for higher prices.
With crude oil still more than 40% off its 52-week high, there’s still plenty of room to run.
And the summertime rally is setup for a target of $65 at first, and further development expected from there.
So, how can you play this increase in oil prices?
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