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Over the past year, WTI Oil has been on a steady decline. The Biden administration’s decision to release 250 million barrels of oil into the market only added to the downward trend, resulting in a significant drop in energy inflation. The Consumer Price Index, the official inflation measure in the US, indicates that energy inflation has seen a considerable decline in the past year, with the exception of car prices. However, there are indications that the oil market is starting to show signs of recovery. This week, oil is looking to record its first consecutive weekly gain since December, with prices surging by nearly 7%. The easing concerns over the banking crisis and supply disruptions from the Middle East have contributed to this rally. Despite the ongoing recession, the commodity has remained above the $65 per barrel mark. With this week’s surge, oil is now within striking distance of breaking out of its year-long downward trend, as indicated by the graph below: |
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If concerns over the instability in the banking sector continue to ease and supply disruptions persist, along with further signs of inflation calming down, oil prices could continue to rally. The tensions between Kurdistan and Iraq have disrupted oil exports, which are expected to continue and may drive oil prices up further. The market is now eagerly awaiting the release of the personal consumption expenditure index, which could support the rebound in oil prices if the data is positive. Over the weekend, this notion has only gained momentum with the OPEC countries deciding to cut over a million barrels of production per day. This has caused the oil price to jump by 5% in one session. It is easy to gather that we are in for interesting times with the OPEC countries trying to wrestle control back from Central Banks regarding the oil price. Some investors are banking on Chinese growth to provide support to oil prices later this year. Major institutions such as Trafigura and Goldman Sachs predict higher prices ranging from $80 to $140 per barrel. According to Scott Sheffield, the CEO of Pioneer Natural Resources – a top shale producer in the US – oil prices are bottoming out. They could potentially surge by as much as 17% around summertime. This presents an opportunity for investors who are paying attention to market trends. |