You Can’t Have an Oil Rally and Low Inflation, Too
Back in June, I wrote that in a perfect world, oil would be at $80 a barrel then itself, $90 in July and $100 by August. Well, it’s taken a little longer to get both U.S. crude and global benchmark Brent moving appropriately higher. But it’s still not a perfect world by any means, because this new rally in oil might worsen an old problem: inflation.
From below $67 a barrel in June, U.S. crude’s West Texas Intermediate, or WTI, matched an April high of $80.61 on Thursday. Brent went from sub-$72 last month to a three-month high of $84 in the past 24 hours.
If that momentum keeps up — there’s not much immediate reason why it won’t — crude prices will finish higher for a fifth straight week in a run that has already delivered as much as 13% to the pocket of oil bulls for July.
And with oil producers in OPEC chanting non-stop about the supply cuts that group leader Saudi Arabia was supposedly making; the U.S. economy appearing to have grown far beyond forecast in the quarter — and Americans filing fewer unemployment claims each week despite moderating jobs growth — the rally could have some way to go fundamentally.
Technically as well, WTI might not hit serious resistance until $86, charts suggest.
“Holding above the 5-day EMA of $79.10 is a precondition for continuation of current bullish momentum,” Sunil Kumar Dixit, chief technical strategist at SKCharting.com said, referring to the Exponential Moving Average.
He said the next immediate target of oil longs would be the 100-week SMA, or Simple Moving Average, of $85.30 and the monthly Middle Bollinger Band of $86.40
“These two levels are likely to act as the resistance zone in mid-term,” added Dixit.
The popular saying about the demand for oil is that it is inelastic to
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