Last year, the price of crude oil reached a multi-high level of $87. Since then, the price of Brent dropped sharply after Donald Trump gave exceptions to Iran oil. This was an unexpected move, which saw the price drop to a low of $49.50. In response to this, OPEC members met in Vienna for their annual general meeting, where they decided to slash oil production. By doing this, they wanted to constraint the production, with the goal of raising the prices. It has worked. This year, the price of crude oil has jumped by more than 30%.
The surge in price this year has been because of OPEC decision to cut production and the sanctions the US has put in place on Venezuela, which has the biggest oil reserves in the world. In addition, investors have ignored the slowing global growth. This week, Christine Lagarde, is expected to slash global economic forecast for the second time this year.
In addition, production from the US has been sluggish. According to the EIA, the country produces more than 12 million barrels of crude oil every day, making it the biggest producer in the world. It is followed by Saudi Arabia and Russia.
Over the weekend, a conflict in Libya escalated, leading many to fear that there will be disruptions in production. Libya has been a dangerous place since the killing of Muammar Gadaffi in 2011. Over4 the weekend, Khalifa Haftar, a military strongman who controls the country started an offensive against UN-backed government in Tripoli. While the current fighting is away from the main oil fields, the fears are that it could continue. 21 people were confirmed dead. In response, US secretary of the state has called for an immediate end of fighting and asked for talks to start. This is unlikely because the country has been polarized after the murder of Gadaffi.
In the annual chart below, the price of crude oil has reached a high of $70. This price is above the 50% Fibonacci Retracement level and is above the upper line of the Bollinger Bands. There is therefore a likelihood that the upward momentum may continue until the pair tests the previous highs of almost $90.