Oil and Inflation
Market analyst – IFC Markets
While the market is worry about the inflation, latest oil price raising has exacerbated these concerns. Calling that energy crisis or energy price crisis, the reason is higher inflation at the end, as usual, it is the consumer that has to pay the price!
Monday evening and in its last trading hours, WTI crossed above $81 for the first time since 2014. There are several reasons why prices increased and still increasing. Winter is coming, and with current higher prices in the market, there are many questions that we have to buy the oil or to use the inventories, no matter what, we have to buy now to use or later to replace the used inventories and both will support the higher prices. On the other hand, OPEC+ in its latest meeting, rather than market expectations to increase the production, held the current production plan, while after gas and coal shortage demand for Oil increasing.
Also, yesterday we had a report that Saudi Aramco planning to increase its supply of crude oil for the Asian market in November with lower prices that caused a break in the bulls’ way and ease under $80 in the European season, from its 7-years high above $81.
Oil and stock markets have a two-way relationship. Current increasing Oil price increasing the inflation and it is going to be one of the main reasons for central banks to decrease their supports and start increasing the rates, as the central bank of New Zealand did and now we are waiting to see the same reaction from FED as well, before year-end. On the other hand, these market expectations from central banks mean weaker stock markets and decreased production, and it will end with less demand and finally, Oil price reduction. And it was the reason to see a little bit of stability in Tuesday’s trades.
From the technical point of view, in the Daily chart, RSI is above 70 with an increasing OBV trend line, still supporting the bulls. In the smaller time frames, and RSI eased under 50 and the OBV trend line also decreasing, telling us that in the short term, we can see the weakness in the market and correction in the prices.
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