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If there's any industry whose sentiment can go from hot to cold in just the span of a week, it's the oil industry.
That's how this past week has been, with both WTI and Brent - the U.S. and global benchmarks, respectively - down more than 7% since July 11, when prices logged their worst daily drop in over a year.
Naturally, this has analysts and talking heads across the industry in a fit of frenzy. After all, WTI had been on an unstoppable long-term rally, gaining over 23% since the start of the year.
Let them worry.
I'm not the least bit surprised about the recent pullback. With such an incredible run to three-and-a-half-year highs, prices were bound to get overheated and drop below the psychologically important $70 level at some point.
Geopolitics have been so front-and-center lately that despite boosting prices to record highs earlier this month, they've now turned on us and dragged prices back lower.
Here's how this switch happened - and why I'm confident oil markets will turn back in our favor...
The Real Reasons Oil Prices Are Falling Below $70
Since the start of summer, there's been only one catalyst propelling and dragging oil prices above $70 and back below this week...
Geopolitics, plain and simple.
Except when it comes to geopolitics, things are never simple.
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Oil's rally in June and earlier this month centered on Iran, which the White House has been attempting to blackball from the oil market by pressuring allies to block the country's imports. This initiative boosted prices to $74 a barrel by the end of June, capping off oil's fourth straight quarterly gain.
Not only that, but Iran - which is OPEC's third-biggest oil producer - has also threatened to halt exports from the Strait of Hormuz, the world's largest concentration of tankers carrying about 30% of all seaborne-traded crude oil.
But Iran hasn't been the only player at the card table.
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Venezuela's impending economic collapse has continued to be an influence since the country sits on the world's largest oil reserves. The nation's hyperinflation has hit over 40,000% in just the past year alone. It doesn't appear that relief is coming anytime soon, as President Nicolás Maduro refuses humanitarian aid.
It was clear from those two scenarios - as well as persistent production troubles in Nigeria, Canada, and several other major oil nations - that geopolitics were heavily affecting global oil supply. This was enough to keep WTI aloft at such dizzying highs as $74.
But this past week marked a sea change in the geopolitical narrative - and it all started in Libya, which boasts the largest oil reserves in Africa.
News that the country opened up major oil ports instigated the recent price sell-off. With those ports ready to export the country's more than 1 million barrels a day, supply fears stemming from Iran and Venezuela's comatose oil industries were mostly erased.
Also abating fears was the White House's talk of potentially releasing stockpiles of crude from the U.S. Strategic Petroleum Reserve.
The government has come under pressure in recent months to stop rising gasoline prices as a result of higher oil prices. This has forced the White House to consider flooding the market with reserves to bring prices at the pump back down for American consumers.
Now, I'm confident continued international instability will inevitably boost global demand and reduce supply - therefore pushing prices back above levels we saw earlier this month.
But this smattering of recent news, both domestic and global, points to one thing: Oil is still an incredibly important component of the geopolitical landscape.
This all ties into one of the most significant concepts I harp on quite a bit in Oil & Energy Investor...
How Oil's Geopolitical Role Emphasizes the Energy Balance
While oil will likely remain the most-watched energy commodity around the world, it's only one part of the ongoing energy balance.
This "balance" refers to the increasing use of energy sources other than oil. These include natural gas, wind, nuclear...
And, most importantly, solar energy, which is rapidly becoming oil's biggest match.
We're seeing the rise of solar everywhere we look, from our neighbor's rooftops to massive farms of panels as far as the eye can see...
We're seeing it in Arizona, where thousands of citizens just inked an initiative requiring 50% of all power generation to come from solar and wind by 2030...
And we're seeing it in California, which just signed a law requiring half of the state's electricity to come from clean sources.
In fact, my own estimates show that $48 trillion could be invested in the solar energy market in the years to come.
Investors who get in early may very well find themselves among the ranks of newly minted millionaires.
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The post Here's Why Oil Is Having Its Most Volatile Week of the Summer appeared first on Oil & Energy Investor.
About the Author
Dr. Kent Moors is an internationally recognized expert in oil and natural gas policy, risk assessment, and emerging market economic development. He serves as an advisor to many U.S. governors and foreign governments. Kent details his latest global travels in his free Oil & Energy Investor e-letter. He makes specific investment recommendations in his newsletter, the Energy Advantage. For more active investors, he issues shorter-term trades in his Energy Inner Circle.