Why Oil Will Keep Rising

  • Commodities Analysis

Last week was very productive for oil buyers. In just a few days, WTI recovered more than 10% and approached the $70 per barrel resistance, maintaining the potential for even greater recovery.

Market participants keep buying oil amid the decline in US oil inventories, which indicates a strong demand for petroleum products in the domestic market. In addition, the decline in oil inventories is almost inevitable in the coming weeks in the light of another natural disaster that struck the Gulf of Mexico over the weekend. Hurricane Ida, which was assigned the fourth category, has already caused a 1.74 million barrels per day decrease in oil production in the Gulf of Mexico, which accounts for 96% of oil production in the region, or 1.7% of global supply. The disaster has also affected fuel production. The hurricane temporarily halted pipelines, offshore oil and gas production, hindering the operation of the Colonial pipeline with a throughput of 2.5 million barrels per day. The pipeline supplies gasoline, diesel and jet fuel to the east and southeast of the United States. Since it will take time to restore the normal operation of oil infrastructure, we believe that the hurricane will keep impacting the market mood for most of September.

The quotes are also backed by the growing tensions in the Middle East after the Israeli defense forces had to speed up preparations for military action against Iran in light of its significant progress toward the technology needed for an atomic weapon. If this information is confirmed, the risk associated with potential supply disruptions will be priced fairly quickly.

The US dollar is another significant driver for oil prices. After Powell's speech at the Jackson Hole symposium on Friday, traders came to a conclusion that the US regulator is not ready to deprive the economy of existing stimulus just yet. As dollar buyers didn't receive any hints on possible tapering from the Federal Reserve Chairman, the dollar went down, making commodity assets denominated in USD far more attractive to buyers. Market participants believe the Fed's management may change its stance regarding the reduction of QE as soon as during the September meeting, at the end of this month. Until then, nothing threatens the oil market. That being said, we recommend holding long positions in WTI crude oil with a target of $ 75 per barrel, which corresponds to 10% profit.

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