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Is WTI Crude Oil nearing a peak?

The WTI Crude Oil nears triple digits as the oil futures extended their three-month-long rally to the highest level of the year, settling at $93.68 a barrel, up 3.64% from yesterday's close and more than 30% since the beginning of summer in June and the highest level since August 2022.

U.S. crude settled at its highest level since August 2022, and Brent crude also finished at $96.55, its highest close since November.


The sharp jump in oil prices began promptly in July, soon after production cuts made by OPEC (i.e., Saudi Arabia) dramatically reduced oil supplies to a level far below global demand.


The Energy Information Administration also reported last week that U.S. crude inventories fell more than expected to their lowest level of the year. The EIA news and the American Petroleum Institute survey showing crude oil inventories in Cushing, Okla. declining to a 14-month low fueled the recent explosive rise in oil prices.


Oil prices moving toward triple digits are making consumers and investors nervous. Generally speaking, oil prices above the psychological $100 a barrel can hurt motorists, triggering them to drive less and spend less. The rise in crude toward $100 also hurt investors as higher commodity prices imply the Fed will need to continue to raise rates further. The oil demand will eventually wane as oil prices climb too high and consumers cut back on spending. The drop in oil demand can ultimately lead to lower inflation.


Crude oil and the value of the U.S. dollar tend to move in the opposite direction. However, both have been rising in tandem in recent months. The jump in crude oil, coupled with the acceleration in the U.S. dollar and weakness in local currencies, caused countries such as China, India, and the Eurozone to pay even more because they must buy dollar-denominated oil.


Technically speaking, WTI crude oil nears critical resistances, corresponding to the 93.5-94 (Oct and Nov 2022 highs), 97-97.5 (Mar 2022 downtrend, top of the Jun 2023 uptrend channel, the 50% retracement from the Mar 2022-May 2023 decline, and the Aug 2022 highs), and 102-105 (7/29/22 high and the 61.8% retracement).


Will WTI peak near these formidable resistances?


Or will WTI surge above 102-105 and confirm an intermediate-term breakout, resulting in a retest of its 2022 all-time highs (130.50/123.68)?


The Federal Reserve Economic Data (FRED) has an interesting chart showing Spot Crude Oil Price: West Texas Intermediate (WTI) adjusted for inflation. Adjusted for inflation is the Consumer Price Index for all urban consumers and all items in the U.S. city average.


The chart dates back to January 1947 and was indexed to 100 in Jan 1970. Last month (August 2023), the WTI Crude Oil adjusted for inflation (CPI) traded to a high of 300.7, just below the Oct 1990 peak of 304.6.


Interestingly, despite the explosive rally in WTI crude oil from the 2020 pandemic low, WTI crude oil adjusted for inflation is trading around the same levels it reached nearly 33 years ago when Iraq invaded Kuwait and the onset of the Jul 1990 to Mar 1991 U.S. recession.


It seems that WTI crude oil does not appear to be as high as many perceived it to be, at least when adjusted for inflation (CPI).


Source: Chart courtesy of StockCharts.com

Source: Chart courtesy of St. Louis Fed (FRED)

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