Oil trades at 10-month high: What it could mean for the Fed

Oil (CL=F) is trading at a fresh 10-month high. Yahoo Finance Markets Reporter Jared Blikre breaks down the charts and explains why higher oil prices could complicate things for the Federal Reserve.

Video Transcript

- Well, oil prices jumping to their highest level this year. Jared Blikre is here with a closer look.

JARED BLIKRE: Hey, there. Well, let's take a look at crude oil, what it's doing over the last three months. In fact, all the tickers here on the top line here representing commodities are up more than 15%. That begins with heating oil, but we want to talk about crude oil today.

Here's what it's done. Up 32%. And you might say, is it done? Has it gone too far too fast? And I say the answer is no because this is a look at what's happened over the last year. We just broke above a resistance level. But basically, we've been trading sideways. Should we break above $90? Let me show you what could be in store. We could be heading to these highs around $120 per barrel.

By the way, yesterday, JP Morgan CEO Jamie Dimon was saying we could see $120, $130 crude oil. Probably talking Brent, but WTI would be close behind here. What could be the catalyst? Well, we also have, from the Biden administration, they are rebuilding the SPR. That is a strategic petroleum reserve. They just started that relatively recently around here. And decidedly not down by those $66 per barrel prices. So this is just going to be another marginal consumer of crude oil which could raise prices.

And all of this is against the backdrop of slightly rising energy prices. So far, RBOB Gasoline futures here, those have been trading sideways over the last three months. Arguably the last year as well. And if we go to a two-year chart, you can see the resistance level. You start chopping above $3 per whatever their-- per unit, you're probably going to see to at least $4, and we could even get far beyond that.

Here's a five-year look at what's happening. So with next year being an election year, RBOB Gasoline futures ticking up. Also we have CPI tomorrow. I think some of this latest energy data is going to be included in there. That's why we're seeing a handle of 3.6% on that headline CPI print. If all that comes to pass, this just shows that goods inflation, the price of commodities is finally affecting that place of the market where the Fed hasn't been concentrated because the Fed has been concentrated on the services side.

It's great that rent inflation is coming down, but if we see energy prices ticking up and if we see crude oil shoot above $90 a barrel, if we see RBOB Gasoline futures go to $3, we're going to have a mini crisis on our hands again.

- Maybe.

JARED BLIKRE: Maybe.

- We'll see.

- Mini. It's all relative.

JARED BLIKRE: It's all relative, I guess. I don't know. This rate of inflation still has slowed way down. But if it re-accelerates.

- Yeah. Q1 next year.

JARED BLIKRE: All right. We'll keep an eye on it. Thanks so much, Jared. Appreciate it.