Crude Oil Price Drops from the Highs, But Bullish Pressure Remains

FXOpen

One of the most spectacular market rallies this year formed on the oil market. After the dip below the zero level in April 2020, the price of oil rallied to $68 in March 2021.

The move higher comes in line with rising global demand as the global trade volume reaches pre-pandemic levels. However, the price of oil is higher now than the pre-pandemic levels and triggers expectations of higher inflation ahead.

Crude Oil Price Drops from the Highs, But Bullish Pressure Remains

Oil and Inflation – Why Should Traders Care?

The problem with higher oil prices is that they trigger higher inflation expectations. As such, central banks are forced to intervene because they all use inflation as part of their mandate. More precisely, higher inflation above a central bank’s target leads to the central bank rising the interest rates. Hence, the currency market is the first one to be impacted by a move in the price of oil. Because traders try to anticipate the moves well ahead, the volatility in the currency market increases with the volatility in the oil market.

Last week’s drop of over 7% on a single trading day spooked some investors, but the price of oil found strong support at the $60 level. Moving forward, the focus shifts to the OPEC+ meeting scheduled at the start of April.

While the global oil demand increased in the last months as more economies reopen after lockdowns generated by the pandemic, there is still room to go. At current levels, demand is still less than pre-pandemic levels, so the price of oil may make new highs if the supply does not meet demand.

Speaking of supply, if OPEC does not increase production in the second quarter of the year, the risk is that the price of oil will make new highs. The vaccination pace in advanced economies is strong enough to trigger rapid economic recovery, creating a positive environment for further advances in the price of oil.

 

This article represents the opinion of the Companies operating under the FXOpen brand only. It is not to be construed as an offer, solicitation, or recommendation with respect to products and services provided by the Companies operating under the FXOpen brand, nor is it to be considered financial advice.

Latest from Financial Market News

Weekly Market Wrap With Gary Thomson: CAC 40, AUD, OIL, AMAZON The US Continues to Trump the Euro Economy on Key Metrics, But What Is Next? Is the UK really in a recession? Perhaps 2024 data will be different Weekly Market Wrap With Gary Thomson: US INFLATION, GBP/USD, GOLD, BITCOIN EURGBP continues to be suppressed during February. Will it rise again?

Latest articles

Shares

5 Stocks To Consider in March 2024

Here we are, beginning the last month of the first quarter of 2024, which has passed by in somewhat of a flash. Perhaps the apparent speed at which the spring is approaching can be attributed to what appears to be

Commodities

WTI Oil Price Reaches 4-month High against the Backdrop of OPEC+ Decision

On Friday, the price of a barrel of WTI crude oil exceeded USD 80 per barrel due to the decision to continue the policy of reducing oil production by OPEC+ countries. Saudi Arabia said on Sunday it would extend oil

Financial Market News

Weekly Market Wrap With Gary Thomson: CAC 40, AUD, OIL, AMAZON

Get the latest scoop on the week's hottest headlines, all in one convenient video. Join Gary Thomson, the COO of  FXOpen UK, as he breaks down the most significant news reports and shares his expert insights. European Stock Markets on

CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. CFDs are complex instruments and come with a high risk of losing money rapidly due to leverage. 65.68% of retail investor accounts lose money when trading CFDs with this provider. You should consider whether you understand how CFDs work, and whether you can afford to take the high risk of losing your money.