Today, we have too much oil on the market. The supply of oil is still well above its five-year average.
In other words, supply is high.
And when supply is too high — regardless of whether we are talking about commodities, manufactured goods or even services — the price will sharply drop to reflect it.
When it comes to this particular commodity, we’ve got too much black gold filling that market and that should keep prices lower.
But there is a particular game changer out there that could disrupt the price.
Disasters and the Oil Market
Hurricane Harvey slammed into Houston, Texas, which is a major hub for the oil industry. This prolonged disruption could push U.S. supply down … which is good for prices.
But that’s not the only factor that is shaking up this industry.
Sadly, rising geopolitical tensions and talks of war also have a positive impact on the price of black gold.
The current war of words used by both North Korea and the U.S. are fanning the flames of aggression. Right now, it won’t take much of a mistake to cause an international incident.
That risk is driving prices higher.
You can see it happening in the chart of Brent crude, the benchmark for European oil prices. Brent hit its highest point since July 2015.
For the first time in a long time, it’s time to focus on the oil sector. While supply is still strong, demand is warming up.
The European economy is improving. Europe is the world’s second-largest consumer of crude. Increasing demand there would go a long way for rebalancing this market.
This trend could signal big gains in a beaten-down energy sector.
Regards,
Matt Badiali
Editor, Real Wealth Strategist
