Big Oil, Big Implications
Ashraf Laidi | Oct 12, 2021 12:54AM ET
by Adam Button
Markets started the new week on a positive mood as the yen continued its retreat and US crude oil hit $81 for the first time since 2014. US and Canada weren't preventing FX from engaging in the classic carry trade, lifting AUD and NZD at the expense of JPY.
DXY was closing in on a tightening wedge, which could set up for 94.90s or 93.50s. The gold/Brent chart below will be closely watched on whether the weekly RSI will breakdown below 30.
Lebanon offered a glimpse into the growing global energy crisis over the weekend as the entire country was plunged into darkness for 24 hours on the weekend. It's an increasingly complex situation as the nation struggles to cover and secure diesel for power plants.
Weekend reports also highlighted the growing coal shortage in India as two Northern states suffered rolling blackouts.
Households and companies in both places and elsewhere are frequently turning to diesel-powered generators to supplement or supply power. With natural gas prices at extraordinarily high levels, there is also large scale switching to oil when possible.
As a result, oil demand may be recovering more quickly than anticipated. On Friday, US oil hit $80 for the first time since 2014 and it continued higher early on Monday. Technically, there are blue skies on the chart up to significantly higher levels. The economic knock ons from that are negative and inflationary but for now the beneficiaries are oil-exporting currencies.
Notably, one level to watch is $86.90 in Brent. Unlike WTI, the global oil benchmark hasn't broken the 2018 high and, at time of writing still had $3 to go. A break of that level would confirm (or block) a genuine breakout. Meanwhile, Saudi Arabia was not exactly in a hurry to temper the windfalls of rising oil at a time when it was seeking diverse sources of revenue.
In Monday's broader trade, the trend of yen weakness appeared to be gathering steam. It's an acknowledgement of the global reflation trade and rising yields.
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