The price of WTI oil continues to rise, trading above $122 per barrel: what do the charts say?
Paul Roberts
05 / May / 22
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One of the side effects of the conflict in Ukraine is a sharp rise in commodity prices. Oil, for example, is currently trading above $122 a barrel as staggering developments in the world of macroeconomic data have led to a huge contraction.
In fact, commodities were growing long before the Russian-Ukrainian conflict. The COVID-19 pandemic has caused commodity prices to soar as supply chain bottlenecks hurt economies around the world.
But this is something else.
Such a movement in oil prices will lead to an even greater increase in inflation. By comparison, before the outbreak of war in Eastern Europe, inflation in the United States was at its highest level in four decades. Oil traded at about $70 per barrel, but prices for goods and services continued to rise. Now that the price of oil has almost doubled, what will inflation look like in, say, two or three months?
Furthermore, a study by Goldman Sachs shows that a sustained rise in oil prices of $20 a barrel would lower real GDP by 0.6% in Europe and 0.3% in the US. Therefore, rising oil prices can have serious consequences for economic growth.
More strength awaits us above $100 per barrel
The fundamental picture continues to push oil prices higher, but the technical picture also looks bullish. The market formed a contraction triangle below the $100 pivot and consolidated for a while before moving higher.
A daily close above $100 was a signal that the price would continue to rise. Finally, the pennant is worth $110 and the market is now trading at $122.
Despite the fact that the price of WTI crude oil is above $100 per barrel, it remains bullish. Only a daily decline to the pivot level will signal a change in the bullish trend.
For financial markets and beyond, such high levels of oil prices suggest that inflation will further reduce real household incomes. As the Fed looks to raise rates to halt inflation, stable oil prices could prompt further action from the world's largest central bank.
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Paul Roberts
Paul Roberts 51 years old Born in Edinburgh. Married. Studied at University of Oxford, Department of Public Policy and Social Work. Graduated in 1997. Works at Standard Life Aberdeen plc.
