David Feldman

WTI Tops $40, Will the Rally Continue?

Blog Post created by David Feldman Champion on Mar 20, 2016

Oil climbed above $40/bbl for the first time since late 2015 as the Federal Reserve continued to provide economic stimulus to support demand.  The Fed did this by scaling back expectations for the pace of interest rate gains.  Or more simply stated… They are continuing to drive the value of the USD down to bolster demand for commodities priced in USD. 

 

"This is a strong rally and the main catalyst is the return of easy money," said John Kilduff, a partner at Again Capital LLC, a New York-based hedge fund that focuses on energy. "The Fed announcement yesterday was the latest sign that central banks are going to continue with stimulus. This is putting downward pressure on the dollar, which favors commodities."

 

However, there is another side to consider with the recent increase in oil prices.  Faced with the new competition from American Fracking, OPEC may want to keep prices down, continuing their effort to push competition out of the market.  Even though they prefer the higher prices, they believe their ability to endure a price war is far better than their American counterparts. 

 

Just last month Ali al-Naimi, Saudi Arabia’s petroleum minister, publicly told American Frackers, “…the market will crush them – because they don’t have the cost structure to survive the on-going price war, which may end up taking oil close to $20.”

 

So as multiple forces and underlying interests tug at the price of oil, the future still remains uncertain.  Multiple members of OPEC are finalizing plans for a meeting in Doha on April 17th to discuss their strategy going forward. 

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