Wake Up To Crude Reality.

Larger-than-forecast inventory gains caused crude oil to drop two days in a row, however, there are plenty of reasons to suggest that the highly sought-after commodity is likely to appreciate and potentially hit the century mark.

Over the past six months, black gold has been oscillating back and forth in the $70-$85 range and according to an analyst at Lind-Waldock, the commodity is at the uppermost point of its range. To take it a step further, crude’s pattern suggests that it will break away from its high point and could potentially add an additional $15 per barrel.

On the supply side, the recent increases in crude stockpiles will likely dissipate in the coming months. The driving force behind this is relatively flat production. When the global financial meltdown put a damper on demand for crude, OPEC cut production levels to reach an economic equilibrium point. Now that both developing and developed nations have emerged from the Great Recession and expected growth in global GDP is set to reach 4.5%, the demand for crude will likely be bolstered, resulting in a supply-and-demand imbalance that will slowly eat away at excess inventories.

Granted, exploration and production companies have the ability to increase the amount of usable crude, solving the anticipated supply-and-demand imbalance that is expected to be seen later in the year, but the time lag between discovery and delivery to the pump is so large that a short-term impact on prices is likely undisputable.

Lastly, the US dollar is expected to remain weak and unstable, which will likely support the price of crude oil. Crude is traded in dollars, and as the dollar declines in value, it generally becomes more attractive to foreign investors.

Although an opportunity seems to exist in crude oil, it is equally important to consider the volatility and inherent risks involved with investing in commodities. To help mitigate these risks, an exit strategy that identifies a price point at which an upward trend in these equities could come to an end is of utmost importance.