Oil price hits record high: Will crude reach $100 a barrel?  

The oil price surged to a three-year high, breaching $77.50 per barrel as a price war erupted among oil-producing nations.  

  

Oil prices have explosively surged throughout 2021 to reach a three-year high at $77.50 per barrel on July 7. The record-breaking surge is the result of a price war that has erupted among oil-producing countries.  

In this article, we’ll examine the rise in oil prices and the opportunity for traders going forward. 

 

Deal gone wrong, price war erupts 

The Organization of the Petroleum Exporting Countries (OPEC) meeting to reach a deal regarding output increases for 2021 and 2022 was postponed indefinitely. The United Arab Emirates (UAE) blocked a deal to increase output by two of the world’s largest oil producers, Saudi Arabia, and Russia. The resulting price war resulted in oil prices reaching levels not seen since 2018.  

The proposal called for a 400,000 barrel per day increase to meet the increasing demand from reopening economies. The UAE wanted to produce significantly more to take advantage of higher oil prices.  

 

Prices spike in 2021 

Oil prices have climbed more than 50% during the year to date. The spike is due to increasing demand and OPEC affecting supply dynamics. As vaccines are rolled out globally, more countries are opening their economies resulting in a resumption in domestic and international travel.   

Supply has been limited to stabilize prices after oil futures dropped into negative territory in 2020.  

 

Overnight collapse  

With the incredible spike in the oil price, it’s important to remember the collapse the industry faced in 2020. The advent of the coronavirus pandemic had a catastrophic effect on the global oil and gas industry. On April 20th, 2020, the price of WTI (West Texas Intermediate) crude oil slumped into negative for the first time in history, dropping to negative $37.63 per barrel. Travel bans, declining consumer demand and high production output resulted in the lowest recorded oil prices.  

 

Travel increases, demand for oil returns  

The global economy is on recovery and many countries have lifted travel restrictions, which indicates that global oil demand will increase in the near term.  

While global travel is nowhere near pre-COVID19 levels, vacation flights and road trips are slowly picking up, pushing fuel demand up.   

In the US, a record number of commuters travelled across the country to celebrate the 2021 July the 4th weekend.  

 

Price hikes hurt motorists  

The volatile movement in fuel has resulted in an increase in fuel costs in many countries, including South Africa. South African motorists will end up paying much more for their fuel in July following an increase in international petroleum costs.  

The latest fuel price adjustments show a hike across the board, with diesel and petrol rising sharply.  

 

Overall   

While many commodities have been attractive buy with low prices, the bullish trend in crude oil has continued as prices could break out to a fresh six-year high.   

Overall, the market is responding positively to the rise in crude. As the global economy continues to recover and OPEC’s price war remains, analysts believe the oil price could go beyond $80 barrel.  

 

How to take advantage of oil volatility   

The most accessible method for individual investors interested in oil trading is through Contracts for Difference (CFDs). A CFD contract mirrors the live price of gold on the market and can be bought or sold online through a trading platform.   

Trading gold with CFDs provides investors with access to opportunities without commissions and hidden fees and enables them to generate returns even when prices are falling.   

Buying oil CFDs makes sense when prices are rising since you can close your position any time to profit from the difference. However, when prices are trending downwards, you can also choose to sell the contract and enjoy the same returns.   

Trading beginners are highly encouraged to get in touch with their personal account manager to discuss how they can take advantage of price fluctuations in the gold market, and which trading strategy is better aligned with their profit targets and risk tolerance.   

Register here to get started today! 

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