The price of oil has risen by over
1.5% since
we looked at it last week, and pointed out that there were solid Technical
Analysis (TA) reasons for why it might have moved from a downtrend to an
uptrend. This latest surge indicates that the new uptrend has legs.
We also pointed out that there are fundamental
reasons why oil should be on the rise. As the popularity of shale oil
extraction in the US was one of the primary drivers for the slump in the price
of oil, it is reasonable to believe that the curtailment of this activity, due
to its cost relative to other methods of extraction and the consequent pressure
on shale extractors’ margins due to falling prices per barrel, would have the
opposite effect.
Fed
Vice Chair links oil price to rate rises
At a recent symposium hosted by the
International Monetary Fund and the Wall Street Journal, Stanley Fischer, Vice
Chairman of the US Federal Reserve, gave it as his considered opinion that the
relationship between low inflation globally and the severe fall in the price of
oil was a vital one. You can catch the panel discussion in which he was involved
here:
Mr. Fisher was also confident that
the low oil price was a temporary phenomenon. He believes that when it does
start to rise, the inflation rate will do so too. The low or non-existent rise
in inflation is now believed to be the main reason for the Fed holding off on
core interest rate rises in the US, so it is reasonable to believe that the
price of oil has now become an important leading indicator for those of us who
try to anticipate developments of this sort.
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