Oil has been hovering nearer to $65 for the past several weeks, after reaching above $75 during early July. But the few things that have been stalling oil’s progress over the last two months seem to me to be fleeting, with lots of indications that the more substantive fundamentals continue to strengthen. In all ways, and despite the stock market’s lofty heights, this seems to be a moment to invest for much higher oil prices to come.
Let’s look at the current roadblocks that seem to be detouring oil’s steady climb higher. The first, and biggest seem to me to be the continuing Trump trade war, which has put a steady price decline into many commodities, most starkly with grains like Soybeans:
(Click to enlarge)
Tariffs naturally depress commodity prices as higher taxes tend to depress demand. Although the targets of tariffs has been more focused towards grains and base metals, oil has not been isolated completely from their effects.
But this seems a temporary obstacle, as we’ve seen a new NAFTA agreement between the US and Mexico emerge in recent days. The hope is for Canada to agree to a renegotiation and a new agreement as well, and ultimately for China to start to consider some trade concessions. Whether this gives Trump an undeserved victory for small differences in these agreements or not, it seems clear that the Trade war does not benefit anyone, needs to be resolved sooner rather than later and will be abandoned…