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Rebound In Oil Pice Will Lift Inflation

ByAvaTrade
AuthorAvaTrade
Published 05/07/2015, 01:54 AM
Updated 02/02/2022, 05:40 AM

Oil prices have made another high this year as the crude inventory data released yesterday confirmed for the first time in 17 weeks that we have drawdown situation. Although, the production levels are flat in the U.S., but lower than the recent highs of 9.4 mb/d. Traders are cheering that flat prouduction line is better than higher production line and drop in rigs have curtailed the output level. However, as we have said before, at current pace levels, the U.S. Shale oil production which went offline due to crash in price is well capable of coming online and the oil producers will be more than happy to produce more oil.

Moving away from supply and demand equation, investors have also started to pay attention to another completely different element which is associated with oil price- inflation. We know that deflation is the major problem in the Eurozone and in the U.S., the Fed are determined to increase the Rae but they are hesitant to do s when the inflation rate is not up to their target level which is 2%. With oil prices creeping up the way that they have been, it resolves the problem for the Fed as oil is the primary denominator for all products and increase in oil price also increases the end product price. Thus, we no longer have a fear of deflation and the central banks do not need to have a monetary policy in place which favors that.

Disclosure & Disclaimer: The above is for informational purposes only and NOT to be construed as specific trading advice. responsibility for trade decisions is solely with the reader.

by Naeem Aslam

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