Several factors contribute to soaring oil prices

The performance of oil price gets firmer during the US session as both WTI and Brent crude benefit from strong risk appetite and exploit today’s weaker US Dollar. Equities in the US have pushed higher over the last week ahead of tomorrow’s CPI data, with traders betting that the peak may have been materialized. At the time of wring, WTI trades at $87.80.

Oil has been in a sustained downtrend for weeks, which will come as welcome news to policymakers and central bankers. Continued hawkish policy has put a dent into global growth prospects, which saw WTI trade down to $81/bbl.

Oil prices had fallen in early September as China locked down additional cities as a result of its “Zero-Covid” policy. China’s decision to shut down key cities continues to challenge the global growth picture, with some arguing that there could be spillover effects. If China decides to move away from the said policy, the return of Chinese demand to the market could bring about firmer energy prices on a sharp pace.

Late Friday, the US Treasury revealed guidelines on a proposed Russian oil price cap. Headlines also came out over the weekend that France, Germany, and the UK all had doubts as to whether Iran is truly committed to the new nuclear agreement. Should an agreement be reached, Iranian crude could once again flow to the global marketplace.

Geopolitics remain firmly in focus, and oil prices may be susceptible to sharp moves as headlines continue to swirl surrounding energy caps and the Russian invasion of Ukraine.

WTI has rallied sharply out of the $81 area as risk appetite has returned of late. Price has since retraced to resistance around $89/bbl, with price failing to break above this zone as of yet. If the rally can extend beyond this area, a retest of the pivot zone around $94/bbl could soon be on the cards.

As OPEC+ continues to keep demand tight due to concerns over “disconnects in paper and physical markets,” price may remain supported.

The direction of oil may rely on whether traders continue to buy the soft landing. If traders feel that the Fed will not cause a recession as a result of its tightening campaign, a boost to growth forecasts may elevate oil prices back toward $100/bbl.

Tuesday’s CPI data may offer a glimpse as to what the Fed may do next week at the September policy meeting, with a soft print potentially increasing the chances that we see less tightening into the end of 2022.