Crude Oil: Could the Price Move Above $90?
Antonio Ferlito | Sep 12, 2023 03:38AM ET
Crude Oil WTI Futures fell below $87 a barrel on Monday.
While there were various factors influencing supply and demand, concerns over the slowdown in China's economy were key when it came to commodities.
China is the world's largest oil consumer and still needs to demonstrate that it is changing for the better.
The latest unexpected increases in oil futures and energy commodities, in general, have surprised even traders who were expecting a relatively quiet year.
These forecasts were disappointing on account of the effects of the decrease in supply by market operators and the positive seasonal trend in oil and other energy raw materials.
What will be the consequences of higher prices in oil, and how will they affect consumer prices around the world?
There are grounds for a reduction in oil exports by Saudi Arabia and Russia, which have reached an agreement to this effect.
However, demand appears to remain strong in both the US and Europe, despite the threat of an economic crisis. If we also consider the potential prospects for the stabilization of the Chinese economy, then the price of oil could rise further.
While China and its government are at the center of media attention due to the recent economic turmoil, there is still confidence that the Fed can keep rates unchanged to avoid excessively slowing down the American economy.
Essentially, economic trends are evolving from a month ago, with more volatility in energy commodity markets, as indicated by the Oil Volatility Index (OVX), rising sharply.
I believe that at this moment, the members of OPEC are cooperating in harmony, all united by the intent to respect the agreements made.
Russia has a strong interest in securing a high price to maintain the war economy, and while I am pessimistic about the long term, at the moment, we can expect prices to hover around $90, with peaks higher.
The need for oil in the global economy makes rising oil prices an important factor.
When the price rises, businesses that use oil as an input to produce goods and services see their costs increase.
Transport also becomes more expensive, contributing to the increase in prices of consumer goods.
The annual CPI is one of the macroeconomic indicators most followed by the FED, and this possible increase could significantly influence monetary policy decisions.
Moreover, technical analysis confirms the trend is positive, with prices above the 200-day moving average and trading volumes increasing.
Of note is the recent entry into an overbought zone, where there could be a temporary drop in prices in the short term. According to my projection, the price of crude oil will reach $90 per barrel within the next few quarters.
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