Key Takeaways:
- Oil prices are at an eight-month low as the US Dollar scorches financial markets.
- Brent and WTI have been at the lowest cost per barrel since January.
- Bull traders are closely watching the EU for renewed sanctions. If so, hang on for the ride.
The Oil price is at an eight-month low due to the US Dollar reaching its strongest level in over twenty years amid rising interest rates and fears of a recession.
As of this writing, Brent oil is at 84.470, while West Texas Intermediate (WTI) is at 78.180 per barrel. Last week the US Federal Reserve raised rates by 75 basis points, and other central banks worldwide also had their hikes.
Brent and WTI are at their lowest level since January. In the past 15 weeks, Brent has had only three green candles and WTI only four. Brent had a summer high of 125.149, and WTI during the same period touched 123.654.
Reasons behind the oil price decline
It is not super complicated why the oil price is dropping at this time.
The reason is that the US Dollar is strengthening against other currencies. Oil is traded in dollars, so fuel becomes more expensive for businesses and individuals with weaker currencies. Because the US Dollar is getting stronger and, in turn, costs are higher, it reduces oil demand, thus the current drop in oil prices.
Many economists are forecasting oil prices to rise again over the long term. They point out two key areas. First, war in Ukraine. Before the war, Russia supplied 10% of the oil worldwide. As other nations sanction Russia, oil coming out of the China’s will decrease.
Second, if China’s economy shows a strong manufacturing print on Sept. 29, this may push prices higher.
China is the world’s biggest oil importer, almost double the US. So a strong China equals a strong economy with lots of money to spend on oil imports.
Bear traders should be careful; bulls may have an ace up their sleeve. The oil supply will be limited if the European Union further sanctions Russia in the months ahead. A shortage of oil supplies will almost certainly garner a spike in Brent and WTI once again.
