Cause and Effect of Rising Oil Prices

Cause and Effect of Rising Oil Prices

Oil prices have been on an upward trajectory, hitting five-month highs and showing consistent growth in every trading session since March 27. The price of a barrel of WTI started the day on Tuesday at $84.6 before slightly retracting by midday in Europe. This recent surge in oil prices can be attributed to various factors, including the notable resemblance to gold’s steady increase in buying over the past week.

One of the key drivers of the latest rally in oil prices is the signs of acceleration in China and strong manufacturing data from the US. These factors signal an increase in energy demand, leading to a bullish sentiment in the oil market. Additionally, despite the historical negative correlation between oil prices and the dollar, they are currently rising simultaneously. This anomaly can be attributed to the shifting dynamics in the global oil market, with the US transitioning from being the largest energy importer to a net crude exporter and the largest oil producer.

In recent years, the US has made significant strides in becoming a dominant player in the global energy market. The country’s transition to a net crude exporter and the largest exporter of LNG has positioned it as a formidable competitor to OPEC+ countries. With steady production levels of 13.1 million barrels per day and a stagnation in drilling activity since October last year, the US is expected to further contribute to the rise in oil prices.

The price chart clearly illustrates the growth acceleration in oil prices since the second half of March, with the upper boundary of the rising channel transforming into support last week. Market analysts are also monitoring the potential formation of a “golden cross,” which could trigger additional speculative buying in the near future. From a technical standpoint, the only significant barrier for oil prices is the previous highs at $92.5. Approaching this level may result in substantial profit-taking and consolidation before a potential breakout, highlighting the uncertainty of success in the market.

Overall, the rising oil prices can be attributed to a combination of global economic factors, shifting market dynamics, and technical chart patterns. The current outlook indicates further price growth with small methodical additions to strategic reserves, presenting both opportunities and risks for investors in the oil market.

Technical Analysis

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