Why will oil prices never rise again? (we sell WTI oil on growth as well as the USD/CAD pair)

Crude oil prices, as well as a number of other assets, fell into a kind of time and price trap that COVID-19 created for them. This makes you think that they will never reach the maximum values of 2011 again, when there was talk in the market that they should be expected to grow to $ 200 per barrel.

Should we expect changes in oil prices in the near future?

The quotes of black gold, after falling early this year in the wake of the expansion of the trade crisis between the United States and China, received another blow in the back, when the coronavirus infection, later named as COVID-19, limited economic activity in the world. Due to this, the WTI crude oil mark even showed a negative value, and the North Sea BRENT declined well below the minimum values of 2009 and 2016. But then, on a general wave of hopes that demand will begin to grow in April or at least in May amid the broadest stimulus measures from the Federal Reserve and the US Treasury, which will be supported by the growth of economic activity after the COVID-19 pandemic, prices rebounded sharply. And now, throughout the summer, they are slowly stretching upward, but they cannot gain a foothold on BRENT above the level of 45, and on WTI above the mark of $ 43 per barrel.

Globally, prices cannot move neither the news about the early start of production of vaccines against coronavirus, nor weakly restorative attempts to grow the American economy, and China alone, yes, even in the conditions of the Cold Trade War unleashed by D. Trump, it is simply impossible to swallow everything real supply of "black gold" in the world market.

The weakness of the American and European economies more than covers the growth of economic activity in China. More and more cases of COVID-19 outbreaks are simply digging deeper and deeper into their economies. The recession caused by the coronavirus can drag on for a significant period of time, and then smoothly move to the stage when the world economy will simply no longer be able to recover naturally. The risks of falling production volumes and, accordingly, the demand for raw materials from pre-crisis levels to the current ones, may for a significant period of time drive oil prices, which revolve around the current values, into a rigid framework of the impossibility of either falling or growing. In fact, it will be possible to say that they will never grow again in some near future to those maximum levels of the late 2000s and mid-10s.

So what to expect?

We believe that the slow dynamics of the recovery process in the global economy will keep prices from both falling and growing significantly. They will not grow even if OPEC + further expands its control measures over oil production. Yes, they will not go for it because it is impossible to endlessly cut production because of the risk of ruining this industry. Therefore, we believe that oil quotes of both brands will remain approximately at the current level until the end of this year.

What are the additional risks?

These include the unpredictability and uncertainty of the outcome of the presidential campaign in the States. On the contrary, this factor may cause high volatility in the commodity market, but in no way a steady rise or fall in prices.

What are the prospects?

We believe that all the above reasons and factors influencing the dynamics of crude oil prices will ultimately lead to their stagnation. It seems that quotes will remain approximately near the current levels, which, in our opinion, opens up wide opportunities for making deals on the options market, provided that prices are actually frozen.

Forecast of the day:

WTI crude oil prices continue to consolidate at the upper end of the price range. We believe that the lack of growth in demand for this product and a weak recovery impulse in the US and European economies will not allow them to overcome the local maximum. Therefore, we consider it possible to sell the growth with the local target of 41.85.

The USD/CAD pair remains in a short-term downward trend. In the wake of a limited recovery in oil prices within the general sideways trend, it continues to decline to 1.3150 with the prospect of falling to the level of 1.3100.

The material has been provided by InstaForex Company - www.instaforex.com