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Will We Soon See US Crude Oil Back At $100 A Barrel?
It is hard to fathom that the price of Oil was in tatters just over 1 year ago. Oil futures prices went negative for the first time (the cost of holding oil was greater than owning it) and the price of WTI (West Texas Intermediate) Crude Oil hit an all-time low of $6.50 on the 21st April 2020. Since then, the WTI Oil price has increased by over 1,000% to $76 a barrel. The current price level was last seen back in Oct 2018, meaning that the price of WTI is now higher than it was pre-COVID. As developed economies, led by the US, start to return to normal life the demand for oil is increasing and now Options Traders are betting that the price of oil will once again reach $100 a barrel. The last time the price of WTI was at $100 was back in 2014 when a supply of Crude hitting the markets swiftly push the price down to $45 a barrel.
Interestingly, $100 options are now the most widely owned WTI call contracts on the New York Mercantile Exchange, with the owners betting on a further 30% move from current prices by the end of next year (Dec 2022).
The popularity of $100 options is another example of traders converging on outlandish bets they consider to be easy ways of making money (Tesla plus the Meme stocks such as AMC and GME spring to mind). The world economy is still recovering from Covid-19 and major oil producers are lifting output in response to this increase in demand. However, if prices continue to rise, oil producers will be encouraged to produce more oil which could eventually cause excess supply in the market and in turn cause a sudden drop in prices. The question is how much further the price move will before we see such a move happen?
This chart shows the price of WTI on a weekly chart from July 2012 up to July 2021, we can see that the price has recovered staggeringly from the April 2020 low. Where other than a brief pause at $43, it has been an almost straight up trajectory to the current $76 level. The next major resistance level above here is at $90, a price not seen since 2014 and a break that caused a $45 drop. If we see WTI push through that level, it looks likely that price will continue sharply up…
