Oil prices hit nearly one-year high as it marches towards $100
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(Kitco News) - Supported by OPEC+'s production cuts through year-end, the oil market continues to climb higher, with some analysts saying that it could be only a matter of time before prices push back to $100 a barrel.
Tuesday, West Texas Intermediate (WTI) crude oil prices pushed to a nearly one-year high, testing resistance above $93.50 per barrel. However, this could just be a brief barrier as oil prices have rallied more than 37% from their mid-July lows.
In an interview with Kitco News, Michele Schneider, director of trading education and research at MarketGauge, said that the oil market certainly has enough momentum to test long-term resistance at $103 per barrel.
However, she added that the rally would not be sustainable as higher oil prices will put further pressure on the economy. Although $100 oil may not be viable long-term, Schneider said the broader energy market could remain elevated through the winter. She added that she is now keeping an eye on natural gas prices as winter approaches.
"Any kind of cold winter and nat gas demand will pickup and drive prices higher, so we expect energy prices to add to the inflationary picture," she said.
Schneider isn't the only analyst who is bullish on oil through the rest of the year. Commodity analysts at Bank of America have been bullish on crude since mid-August, when technical momentum created a "golden cross," This indicator is formed when the 50-day moving average moves above the 200-day moving average.
Bank of America said that oil needs to see a convincing break above $93 an ounce to signal a push back to $100. However, for the past month, the analysts have been recommending investors buy oil on dips.
"This summer turn up in prices has gained momentum," the analysts said. "Key resistance lines currently align in the low $90s. The golden cross on August 24th supports an uptrend and buy the dip view."
Edward Moya, senior market analyst at OANDA, said that limited supply should keep oil prices elevated through winter, which is a seasonally slow period for the commodity.
"It looks like some hints of economic resilience have energy markets willing to tolerate $90 a barrel oil, which is translating into a rally to test the $100 a barrel level," Moya said.
|Gold weighed down by higher oil prices following OPEC cuts that are fueling fears the Fed will maintain its hawkish bias longer than expected|
Rising oil prices put more pressure on the Federal Reserve
The rise in oil prices comes during a precarious time for the U.S. central bank as it continues to focus on the persistent inflation threat.
Markets currently expect the Federal Reserve to leave interest rates unchanged following Wednesday's monetary policy meeting. However, the central bank is also expected to maintain its hawkish bias to keep interest rates at restrictive levels for the foreseeable future.
Schneider said that while oil prices have risen sharply in recent months, it is still not a significant threat to the Federal Reserve as it focuses on other inflation pressures.
"Yes, the Fed is aware of higher oil prices, but they are not at a level to induce any type of panic," she said. "The Fed is much more concerned about the tightness in the labor market and the impact labor strikes will have on wages and wage inflation. In this environment, the Fed can easily lose control as it faces multiple threats."
Higher oil prices are working against the gold market… for now
Traditionally, higher oil prices are bullish for gold because of the inflationary pressures; however, analysts note that the inflation pressures are currently working against the precious metal as it forces the Federal Reserve to maintain its aggressive monetary policy stance longer than expected.
However, many analysts have noted that although the Federal Reserve is expected to maintain a hawkish bias on its monetary policies, its tightening cycle is close to peaking, even as inflation remains elevated.
Although gold is struggling in the near term, Schneider said that she remains a long-term bull.
"Gold hanging out above $1,900 suggests we will see another big run when it's clear the Fed is unable to get inflation under control," she said.
In a recent note, Mike McGlone, senior market analyst at Bloomberg Intelligence, said that he expects gold to outperform oil in the long-term.
"Risk vs. reward for the gold-to-crude ratio may favor the metal in 2024, particularly if the global economy continues to deteriorate," he said. "OPEC+ supply cuts may boost crude in the short term, but at the expense of fueling central-bank vigilance and the typical reciprocal economic-contraction effects."