Oil Prices: The Catalysts That Could Deliver $90 Oil

Oil has been a fickle beast.

After topping out at $75 in July 2018, prices slipped to $64 a barrel. However, some analysts believe oil could rally well above $90 later in 2018.

All thanks to Iran sanctions.

Initially, analysts were convinced that US sanctions would not have a major impact on Iranian exports. But they’re quickly changing their tune. In fact, according to The Wall Street Journal, Iranian oil exports are expected to drop to 1.5 million barrels this month.

In June 2018, Iran was exporting 2.3 million barrels.

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If we’re now seeing a drop of nearly 800,000 barrels a day before U.S. sanctions are implemented, we could see sizable supply removed from the market. That alone could send oil prices well above $80, even $90 a barrel.

We highly doubt this has been priced into the market yet. 

Energy expert John Kilduff counts Iran sanctions as the top reason West Texas Intermediate (WTI) could climb as much as 30% by winter, and that could spell $4 a gallon unleaded gasoline at the pumps, reports CNBC.

"The global market is tight and it's getting tighter, and the big strangle around the market right now is what's in the process of happening with Iran and the Iran sanctions," the Again Capital founding partner said on CNBC.  "These Iranian barrels that we're going to lose, it's really going to hurt. It's really going to make a difference and tip the scale in my view to an upside surprise."

We’re also beginning to see demand pick up steam, too.

Concerns that a trade war between China and the U.S. would slow economic growth have cooled.  In fact, Reuters reports that China’s Unipec will resume its purchases of U.S. crude oil after a two-month halt. 

The third catalyst involves the U.S. dollar.

Strength in the dollar was partially responsible for lower oil prices.  However, we believe that as the dollar begins to pullback, oil prices could begin to push aggressively higher.

The dollar is just starting to pullback, which is a good sign for gold.

Much of the recent weakness is thanks to a U.S.-Mexico trade deal aimed at overhauling the North American Free Trade Agreement. It’s forcing investor to unwind safe-haven bets on the greenback and push back into riskier assets.

“The weakness in the buck was the result of relief risk-on flows after the U.S. completed a trade deal with Mexico, indicating that the Trump administration will be willing to negotiate with Canada and Europe as well,” said Boris Schlossberg, managing director of FX strategy at BK Asset Management, as quoted by Reuters.

We believe that if the dollar were to fail at double top resistance, it could test support at 88. 

Overall, bulls appear to be using oil weakness to accumulate cheap oil stocks.

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