The Price Of Oil Breaks Higher. Yes, It’s Inflationary.

The Fed can take interest rates lower any time it wants to but the price of oil is up to the whims of world markets, many of which don’t care about the Fed’s problems. So, for all the talk about an inflation target of 2% or 3% and what officials might do about it, how much Americans pay at the pump is not exactly under government control.

When West Texas Intermediate Crude and Brent Crude prices broke out to higher prices this week, a lot of the Jackson Hole talk by Chair Powell began to look almost beside the point. Many other factors come into inflation outcomes, but oil definitely makes the list, up near the top.

Oil Price Charts.

Here’s the daily price chart for the West Texas variety of oil:

The red-circled area shows where the 50-day moving average (the blue line) crossed above the 200-day moving average (the red line). That crossover demonstrates how the trend has changed — as does the closing price coming in above the previous closing price from earlier in August.

Certain types of trading programs and algorithms stand up and pay attention to these pattern combinations. Nothing’s guaranteed but it’s the first-time oil prices have lined up bullishly for the better part of quite some time. Petroleum traders globally are noticing.

It’s basically the same for the Brent Crude price chart with a slightly different wrinkle: it had exceeded $88 back in January but this week’s move is to a closing price above that level. Note that this version is also accompanied by the crossover of the 50-day above the 200-day moving average.

Many investors simply follow the United States Oil Fund, easily traded on the New York Stock Exchange. Here’s the daily chart:

You can see clearly how the price gapped up above the early August level just over $75. And there’s the moving average crossover earlier in the month — almost a “head’s up” for the move to come. This fund — for the non-futures trader — has average daily volume of 2.9 million shares.

For a more complete perspective, here’s how the point-and-figure chart looks for the United States Oil Fund:

“Ascending Triple Top Breakout” indeed. It looks as if the low in earlier 2023 of around $58 may stick for a while. The 2022 high of $80 may be the target for this move higher — a close above that would be significant, especially for inflation watchers.

Part of the beauty of studying price charts is that you don’t necessarily need to know what the news is. It’s probably a good idea to keep track of events and to consider them, but if you’re investing or trading, all that matters is price movement and charts show in simple form if longs or shorts are making money.