As a result, WTI is at a 3 month high and it is looking to close the year with spectacular gains. Prices reached their bottom at around $27 USD on January 20th. Talk about production cuts had dominated headlines all around, but few seemed to believe that Saudi Arabia and Iran would be able to reach a deal. As a result, oil saw short rallies followed by small declines that kept its price between the $40 USD per barrel and $50 USD mark for months.
Talk about rate hikes all throughout the year did have an effect on oil price recovery, but unlike the Saudi Arabia-Iran deal, many analysts and the markets truly believed rate hikes were just around the corner each time. The Fed however, failed to lift off every time, generating more speculation and disappointment in the markets.
This is probably the reason why the latest talks about a November rate hike is not having an effect on WTI prices, despite keeping the value of the USD high vis-à-vis its global peers. Nevertheless, if the rate hike does indeed go forward, the Greenback should be expected to appreciate and oil prices should be expected to respond accordingly.
Besides the Fed rate hike talk, oil traders should be closely monitoring some other key factors. Chief among them is OPEC’s tendency not to adhere to output agreements. The next few weeks will be key in determining whether or not OPEC nations will buck the trend and stick to their quotas, after Saudi Arabia and Iran finalize their deal at the OPEC meeting in Vienna in November.
Other indicators do not augur a bright future for oil prices. Demand is still growing below the expected pace, global economic growth has just been revised downwards, and shale oil could snap back quickly if oil rallies above $50 USD per barrel and stays above that mark. Nevertheless, if the Fed indeed does lift rates and OPEC keeps production targets within the margins of the most recent agreement, oil could well end the year with a 100% price jump from its $27 USD low.
