Crude oil price’s rally stumbled at $84 with less than two months left in the trading year. What can we expect in the period ahead?
Oil is the world’s most traded commodity and, for currency traders and inflationistas, the one commodity to keep an eye on as it triggers changes in central banks’ monetary policies. During the COVID-19 pandemic, the WTI crude oil price tumbled to negative territory for the first time ever.
But as the world’s economies recovered and supply decreased, the price of oil recovered. It rallied from the lows and kept moving higher in 2021. With less than two months left from the trading year, we may say that this was the year of oil.
Much was said about the current energy crisis and climate change, but the reality tells us that oil will remain the dominant part of the energy complex in the decades ahead. To put things into perspective, from only one barrel of crude oil, or about 42 gallons, 42.7% is turned into gasoline and another 27.4% into diesel. How about the rest? Well, 5.8% is jet fuel, 5.0% is heavy fuel, 4% asphalt, 3% light fuel, and the rest is used in various industries to make tires, paints, and other petrochemical products. Hence, oil, and the price it, is a determinant of economic growth.
As such, it is no wonder that rising oil prices lead to higher inflation. Now that the WTI crude oil price knocks at the $100 door, what lies ahead for the price of oil?
Technical picture remains bullish
The WTI crude oil price’s technical picture suggests more upside is possible in the period ahead. Currently, the market sits at dynamic support given by the 50% retracement of the rising channel.
If the dynamic support holds, a new higher high is imminent. On the other hand, a break below the support leads to more temporary weakness into a confluence area at $7. Only a drop below $64, the previous higher low, would change the bias from bullish to bearish. In other words, the price of oil will likely find buyers on every dip. If the $64 level holds, it’ll be only a matter of time until the market presses for a new higher high.