The Fed Supported Oil Prices

Oil prices are going down since the begging of the week. Brent crude prices were losing 5.0% to $85.62 per barrel on Wednesday, but rolled back to $86.70 per barrel after the Federal Reserve (Fed) released its rather soft comments on its monetary policy. 

The Fed has left it interest rates unchanged at 5.25-5.5%, as was expected. But, the Fed’s Chair Jerome Powell made rather dovish comments after the meeting. He said that the Fed is ready to do what and when is needed to combat high inflation. On the other hand, he signaled that the interest rates hike cycle might be over. Investors welcomed his remarks with the 10-year Treasuries yields dropped to 4.71% from 4.93%. The S&P 500 broad market index added 1.4% on Wednesday, and it continues to climb further. The U.S. Dollar lost around 0.5%, while energies resumed climbing. Dovish signals from the Fed were just in time, as Brent crude prices were nearing the $83.00 per barrel support level. If they fell below this important support, they may accelerate to the downside towards $75.00 per barrel. Fed has supported oil prices by widening the triangle pattern that was earlier established on the chart. This pattern is now limited by $86.00-87.00 per barrel from the downside and by $90.00-91.00 per barrel from the upside. Prices would likely to exit this pattern next week after November 9-10. This triangle is symmetrical meaning a high degree of uncertainty. 

Israel has started its ground invasion of the Gaza strip. Despite an ongoing escalation, Iran is not interfering in the Israeli-Palestinian conflict so far. If it stays this way, a shock of surging oil prices could be avoided. Goldman Sachs analysts have forecasted Brent crude prices to jump towards $150.00-160.00 per barrel if Iran would become a part of the conflict in the Middle East. With current favorable developments of the conflict oil prices are likely to exit this triangle to the downside bolstered by nearing recession in the United States. 

Jeffrey Gundlach, who is consider a kind of the U.S. debt market, said that recession would hit the United States in early 2024 forcing the Fed to cut its interest rates to 2.5% in the middle of next year. If this would be true, Brent crude prices may be eventually be dragged towards $55.00-65.00 per barrel, and this could soon become a primary scenario. But before that military escalation in the Middle East could play a dramatic role. Expanding military actions may enable Brent crude prices for another upside attempt to go for the $100.00 per barrel mark for a short time. Prices may receive more reasons to go in either direction next week. For the rest of this week we may expect them to edge higher to $90.00-91.00 per barrel.