By Barani Krishnan

Investing.com — Joe Biden: How long before oil goes to $100/barrel?

Almost every oil trader and his grandmother – which is everyone, really – seems to think that crude is on its way to three-digit pricing; the only question is when it’ll get there. 

One reason it hasn’t happened yet is because the president has bought himself some time with tough talk against OPEC and the energy industry in general, which he has accused of price-gouging.

At the same time, most are convinced that Biden doesn’t have too many options to stall one of the greatest bull markets in oil’s history.

As the Inflation bomb ticks under his feet, each day brings more challenges. He has to think quickly and strategically about how to stop it from destroying his economy and possibly his presidency.

Main Street and Wall Street both believe that Biden will release oil from the U.S. Strategic Petroleum Reserve in an attempt to discredit the idea that the market has become apocalyptically undersupplied. I use “notion” purposefully here. 

As much as the three-year lows now in Cushing inventories and the dismal growth in Bakken-Permian output and rig counts – not to mention the jet fuel demand expected from next year’s take-off in international level – the so-called tight-oil idea has been blown out of proportion by the long crowd in crude that has used every little market snippet in its favor to add a dollar or more to prices each time. 

This is what we saw earlier in the week. The market had been suffering for nine consecutive weeks and was now facing implosion. As you will see in my market overview, crude oil is still on the rise. But it’s also good to remember there’s only so much fertilizer that even the bulls will be allowed to lay on this market.

Let’s return to Biden, his possible use of SPR. We amusingly saw a number of signals from his own administration and energy czar: First, outright endorsement from Energy Secretary Jennifer Granholm in an Oct 6 Financial Times report). Before the Energy Information Administration (no, not… ban on U.S. crude oil exports now the EIA stated) Granholm revived the plan by saying Biden President Joe Biden could make action this week regarding soaring gasoline price. 

This week passed without Biden, Granholm and the EIA taking any further action. In its Wednesday Short-Term Energy Outlook the EIA stated that Brent crude, the benchmark global oil price, would likely trade around $82 per barrel for the remainder of this year, before dropping by $10 next.

“If the Biden administration was waiting for the EIA to give them a good reason to tap the SPR this week, they did not get one,” said Ed Moya, analyst at online trading platform OANDA.

Thus, the idea of utilizing the SPR isn’t as easy as turning the tap on or off (separately, my Investing.com colleague Geoffrey Smith has written an  on this). There are so many dynamics around the whole thing, the most important being whether America is indeed in a crisis grave enough to risk the nation’s emergency crude supplies. 

What if we end up using a substantial part of the reserve and still can’t get the price down meaningfully? Oder we get the market to fall, but it only makes things worse. Given the possibility of counter-tightening coming from a belligerent OPEC that isn’t willing to waste any opportunity to bring crude back down to $100, the last one could be possible. In order not to be pressured to pump more than it intends, OPEC even downgraded demand for its own crude in the fourth quarter — that’s how sly it can get. 

“Whatever SPR release planned by the White House might not be enough to counter further production cuts that OPEC might do in retaliation,” said John Kilduff, founding partner at New York energy hedge fund Again Capital. 

And don’t forget that if Biden does get the market down, he still has to rebuild the U.S. reserve. What price can we afford to do this?

Kilduff believes that there might still be an option to ensure the SPR is effective, coordinating Washington’s decision with China’s periodic oil sales to reduce the market. But there has to be enough political will on Biden’s end first.

“If the U.S. teams up with China to synchronize their SPR releases – and they could, given their improving relations – then it might make a difference,” Kilduff said. “The two biggest oil importers are both suffering now from high crude prices.”

Biden’s more enduring – and effective – option might be to let Iran have that nuclear deal with the six world powers that will take U.S. sanctions off Tehran’s crude and immediately double that miserly 400,000 barrels per day OPEC has been offering the consuming countries. 

Iran will ultimately be able to bring 2 million barrels or more to the market if its previous extraction capacity hasn’t been terribly impacted by relative inactivity or damage caused to its economy from the Trump-era sanctions. 

Two major issues exist in securing an Iranian nuclear agreement. First, Iran has, as per inspectors at the International Atomic Energy Agency found, gone too far in uranium enrichment. This is a path that could lead to nuclear bomb making. No nation would like to have to reward the Mullahs financially for this – but they will regret it. The other is, of course, loss of “face” for Biden who has demanded that Iran come clean on its nuclear program before any meaningful talks begin – the exact opposite of what the Islamic Republic is suggesting: drop the sanctions and we’ll talk.

The U.S.-Iran standoff and the other options Biden explores to control inflation have bought President Obama some time before the rally in oil likely resumes.

“It seems unlikely crude prices can break above recent highs until energy traders see whatever action will come from the Biden administration,” said Moya of OANDA, But he also adds: “The oil market deficit is firmly in place and that should prevent crude from seeing a significant pullback.”

Crude bears rejoice at shaking the trees of the oil rally. However, every circumstance that drove the market lower over the last three weeks was not without its problems.

Let’s take inflation as an example. 

The Labor Department announced that the US Consumer Price Index rose 6.2% over the past year. This index is a collection of various products including fuel, food, rent, groceries, and medical care. This was the highest growth rate of so-called CPI in the past seven years. It is mainly due to fuel pump prices at their highs of seven years. 

However, the University of Michigan said that Americans were accepting of higher inflation in their closely-watched consumer survey released Friday. This was despite consumer sentiment dropping to a decade-low of 70%.

Technicals on Oil Prices

This week, we will be adding a technical comment on crude to our oil market review. We believe this is important because of its impact on prices swings. Sunil Kumar Dixit (chief technical strategist at skcharting.com), who contributes regularly to technical outlooks in commodity articles published by Investing.com.

Says Dixit of his analysis of U.S. crude’s WTI, or West Texas Intermediate, which settled at $80.79 per barrel on Friday:

After closing on October 17, the weekly stochastic candle of WTI had reached 97. This made it overbought, causing negative and bearish overlap.

WTI reached a bearish top in price when it closed week at October 24, closing at $82.97. That’s below its October 17 weekly close, which was $84.05. WTI was at $81.53 in the following week.

A bearish streak continues with the recent weekly close at $80.79 on 11/11. 

This is the start of the 3 Black Crows technical formation, which can be described as bearish.

The 5-week EMA for $80.87 must be closely monitored.

WTI could recover up to $80.87 if it moves above $80.87, which would be 50% Fibonacci retracement from swing high $85.40 or swing low $78.24.

WTI could test the $78.71 10-week EMA and $78.24 previous weeks with a move below $79.77. This is a major acceleration point to $77 support as well as the $74.28.0 weekly middle Bollinger Band.

Oil Price Roundup

Oil’s overextended rally certainly needed a correction and a third weekly loss seems to point toward that.

WTI settled at $80.79 per barrel, down 80cs or nearly 1%. WTI fell 0.6% over the week following back-toback losses of 2.8% & 0.2% the previous two weeks. Still, compared to WTI’s seven-year highs above $85 in October, the deficit was just a drop in the barrel, so to speak. The U.S. crude oil benchmark is up by 65% this year.

The day ended down 70c, or 1.2% to $82.17. After the losses of 1.9% & 1.3% in the past two weeks, Brent fell 0.8% for the week. Brent hit a 3-year peak above $86 in October and has remained up 58% through the entire year.

Gold Market & Price Roundup

It has exceeded most gold bears’ expectations, but bullion’s true test still lies in its ability to recapture $1,900 pricing and beyond.

U.S. gold futures’ most active contract, , settled Friday’s trade up $4.60, or 0.3%, at $1,868.50 an ounce. It earlier peaked at $1,871.35 — its highest since June 15.

The yellow metal sparkled for a second week in a row, notching a win of 2.8% this week after last week’s 1.8%. The yellow metal also rose seven days in a row, marking the longest streak of green since the beginning of June.

“What’s happening to gold is certainly great, but to me, the price still needs to get beyond $1,900 in order to establish its true cred as an inflation hedge,” said Phillip Streible, precious metals strategist at Blue Line Futures in Chicago.

The last time gold was traded at $1,900 was June. It was at record levels above $2,100 in June during the peak of the coronavirus epidemic between March 2020 and August 2020. This is due to fears over inflation and the global economy.

The inflation hedge that Bullion is known for has been around since its inception. But it wasn’t able to live up to that billing earlier this year as incessant speculation that the Federal Reserve will be forced in a faster-than-expected rate hike had sent Treasury yields and the dollar rallying instead at bullion’s expense.

This trend was halted by Jay Powell, Fed Chair, stating earlier in the month that any rate increase will not be made before the middle 2022 or at the end of this year. 

This week’s rally in gold came as the Labor Department reported that inflation in U.S. consumer prices were running at their highest since November 1990.

Disclaimer:Barani Krishnan is not a shareholder in any of the securities or commodities he writes about.