The price of oil had a remarkable comeback from the 2020 lows. It recently rose to over $65 and now hovers around $60, in line with the declining market’s volatility.
The pandemic brought the world’s economy into recession, and so our need for oil dropped significantly. But as the world fights its way out of the COVID-19 pandemic, the oil demand is gradually on the increase.
OPEC had much to do with the strong comeback in oil prices. It cut production several times and managed to adjust the levels to stabilize the market. It succeeded, and the big question now is what comes next for the WTI crude oil price – a move to $100 or a correction?
The Iran Deal – A Potential Game-Changer for the Oil Markets
Few traders are aware of the fact that the United States, and not Saudi Arabia, is the world’s largest oil producer. The shale oil industry is greatly responsible for the strong U.S. output, as a boom in crude oil production in the lower States sent more barrels to the market.
Because the pandemic affected the oil demand globally, it made many victims among the U.S. shale oil companies. Technological advances like the fracking technique (i.e., drilling horizontally and pumping high-pressured water to release the oil) led to significant reductions in costs, but they were not enough for some companies to survive.
As such, a recent report by the U.S. Energy Information Administration (EIA) showed that the forecast for oil production in the United States is projected to be down, both for 2021 and 2022. The cut should bode well for the price of oil and offer support on every dip, but there is a wild card on the table, and nobody dares to ignore it – a potential Iran nuclear deal.
Negotiations are ongoing, albeit indirectly. If a deal is reached and Iranian production reaches the market, that is a negative for the price, and WTI crude oil should decline.
All in all, the oil market remains stable at the current levels and will likely hover around $60 until more details about the negotiations with Iran transpire. As such, FX traders should expect the CAD pairs’ volatility to be driven by Canada’s economic performance and not by the movements in the price of oil.