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The Battle Of Supply And Demand

By Michele SchneiderStock MarketsOct 06, 2022 03:40AM ET
www.investing.com/analysis/the-battle-of-supply-and-demand-200630709
The Battle Of Supply And Demand
By Michele Schneider   |  Oct 06, 2022 03:40AM ET
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As predicted, oil prices continued to climb in anticipation of an OPEC+ production cut. Reports confirmed today that OPEC+ will cut production by 2 million barrels a day.

The Strategic Petroleum Reserve (SPR), which the Biden administration has tapped to ease gas prices, has dropped to its lowest level since 1984, and scheduled releases will end soon. The continuation of multiple Russian sanctions and the decrease in supply should exert upward pressure on oil prices.

Will the stock market rally this week and be able to shrug off rising oil prices? What do higher energy prices mean for global inflation?

The global energy demand and supply imbalance will take time to resolve, and long-term, more resources must be put towards renewable, nuclear, and alternative fuels.

On the demand side, the critical element of the European gas plan going into the winter of 2022-2023 is reducing consumption, which is regrettably not yet happening.

Although some people are optimistic, the reality is that inflation will remain problematic if the European energy crisis and the conflict in Ukraine continue. OPEC+'s production cut has the potential to increase global inflation unintentionally.

The United States Oil ETF (NYSE:USO) increased on Wednesday to 71.94 which is barely below both its 50-day moving average and 200-day moving average. USO has strong leadership, good momentum, and a divergence in Real Motion, all of which indicate higher prices ahead.

Mish writes a mid-week column for CMC Markets, and in her article today, she explains that we are looking for the end of inflation in “all the wrong places.” She covers the Supercycle in commodities and how stagflation is impacting global markets.

Mish addresses historical correlations from 1972, 1982, and other pivotal years. Her analysis addresses many areas of the commodity cycle, particularly the gold price, gold miners, and the S&P 500.

She points out that several commodities tend to start a positive trend shortly after gold starts to outperform the S&P 500.

In this period of historically high inflation, investors are wise to keep an eye on the oil and gold markets.

ETF Summary

S&P 500 (SPY) 375 support and 379 resistance

Russell 2000 (IWM) 172.30 support and 176.57 resistance

Dow (DIA) 298 support and 305 resistance

Nasdaq (QQQ) 277 support and 283 resistance

KRE (Regional Banks) 60.30 support and 64.77 resistance

SMH (Semiconductors) 197 support 210 resistance

IYT (Transportation) 203 support and 211 resistance

IBB (Biotechnology) 119.32 support and 124.25 resistance

XRT (Retail) 58.70 support and 62.75 resistance

The Battle Of Supply And Demand
 

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The Battle Of Supply And Demand

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Comments (3)
Jeff Page
Jeff Page Oct 06, 2022 8:31AM ET
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Intentional. Was SPR drained to save a party in the midterms? Intentional. Chevron pumping in Venezuela? Intentional. Geopolitics, intent is always present. "There is but one thing that creates inflation" ... Milton Friedman.
Brad Albright
Brad Albright Oct 06, 2022 7:17AM ET
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Who is the "Mish" cited as a source in this article without a last name? Is it the author herself (Michele)? If it is, that is not only strange but poor journalism.
Manfred Kruger
Manfred Kruger Oct 06, 2022 6:56AM ET
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The problem with attempting to view the oil market technically as with other markets is that politics can have overwhelming short to medium term impact. Think oil embargo, wars, Russian sanctions and the Biden SPR release
 
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