Watch out for another bout of crazy oil prices.

The recent sharp rise in oil prices, behind the surging speculation. While Saudi Arabia its OPEC cartel control supply market price stability, the dollar Federal Reserve monetary policy are the real key factors. Speculators' real intention may be to increase oil price volatility by pushing up option prices. Hedge funds have been emboldened by the Fed's repeated emphasis that inflationary pressures are likely to be short-term expectations that its ultra-loose monetary policy will remain for an extended period of time, betting heavily on commodities such as oil.

At the moment, the world oil market seems to be performing a magic trick, with a violent wave of speculation threatening to send prices skyrocketing. Wall Street hedge funds are frantically betting on U.S. West Texas Intermediate (WTI) crude futures through options strategies, with increasing noise that $100 crude futures for delivery by the end of 2022 are already in the works. But, more likely, after a strong wind, a chicken feather on the ground.

Looking at the recent ups downs of oil prices, it is clear that speculation is surging, there is no lack of bulls. Crude oil prices continued to climb this week, with WTI rising just over $66 a barrel to about $74 over the past month. Brent crude, on the other hand, touched $75 several times $68.30 to its highest level in more than two years. Bank of America's newer pricing outlook says Brent could hit $100 a barrel next year; Nigeria's oil minister has threatened to hit $200 a barrel without more investment in oil gas. Of course, there are a lot of rational analysis that crude oil futures speculation is difficult to set off towering waves, oil prices all the way up the possibility of very little. In this much empty fierce contest behind, deducing after all what unknown story?

The standard-bearer for the bulls is Goldman Sachs. When Goldman Sachs, the world's premier investment bank, shouted that oil prices would average $80 a barrel this year, it was greeted with a roar, triggering a frenzy of speculation in oil futures. Of course, Goldman's case is strong important.

First, oil, the mother of all inflation, is a better hedge against inflation. What happens to oil depends on the relationship between supply demand, the strength of the dollar inflation. Goldman Sachs forecasts that Brent crude will average $70 a barrel in the second quarter of 2021, up a previous forecast of $60; It will hit $75 / BBL in the third quarter. At the same time, the oil price rally has been driven by a combination of higher forward prices as a result of speculation a sharp rise in backwardation, driven by tightening policies. Goldman suggests that in a future high inflation environment, investors should seize the opportunity to buy laggard real assets, assets that benefit fiscal stimulus an energy-intensive recovery, assets that are a hedge against inflation shocks, oil is the best bet. It's worth noting that as early as the beginning of the year, Goldman Sachs noted that speculative inflows would steadily push oil prices higher in the months ahead.

Second, there are structural problems on the supply side. Increased supply non-Opec countries will be offset by a sharp drop in global capital spending on fossil energy shale oil companies' pursuit of free cash flow. On the Opec + side, even if members opted to increase output by 4.4m b/d, that would still leave a shortfall of 1.35m b/d this summer, Saudi Arabia is leaving room for future increases. The wild card is Iran's oil exports. Speculators are betting that Iran's newly elected president is unwilling to compromise to continue nuclear talks that the United States is likely to delay lifting oil sanctions.

Global oil demand is forecast to grow by 5.4 million b/d this year 3.1 million b/d next year, reaching 100.6 million b/d by the end of 2022, according to the IEA's monthly report. In a more recent report, the World Bank raised its forecast for global economic growth in 2021 to 5.6% 4%, for 2022 to 4.3% by half a percentage point. These data strongly support the positive oil price. Commodities have always been at the heart of inflation, according to Goldman Sachs, the point is that this time it is cost-push inflation, but demand-pull inflation.

To see oil prices are headed, it is important to understand global inflation trends, particularly the Federal Reserve's monetary policy its impact. At one point, the market rumour was that a growing number of hedge funds believed the Fed had made a huge mistake by ignoring inflationary pressures, capital wanted to punish it by betting on a big rise in oil prices.

Whether this is true, in fact, the longer the Fed waits to tighten its quantitative easing, the better the odds are that these hedge funds will be able to believe that they are buying call options like crazy. New data the Commodity Futures Trading Commission show that net long positions held by asset managers, mostly hedge funds, in WTI crude oil futures options jumped 16.38 million barrels in the week ended June 1 the previous week, while net long positions in call options expiring in December surged.

The current market is full of optimism about a sustained rise in oil prices. However, it is possible that speculators may have a vested interest in increasing the volatility of oil prices by pushing up option prices. Some hedge funds have used these options strategies to amplify volatility in Brent futures prices make handsome gains by buying derivatives that bet on more volatile oil.

While Saudi Arabia its dominant Opec group control supply market price stability, the dollar the Fed's monetary policy are the real key factors. America's ultra-loose monetary policy has had unforeseen severe effects.

In particular, the Federal Reserve has repeatedly emphasized that inflationary pressures are likely to be short-term that the Fed is expected to continue its ultra-loose monetary policy for a long time, which has encouraged hedge funds to take the plunge bet heavily on commodities such as crude oil. As some experts admit, the monetary policies of more more central banks have made coping with inflationary pressures a priority, the recovery of economic growth has been put on the back burner. For example, the Federal Reserve's overnight reverse repurchase operations have repeatedly reached record highs, indicating that the current liquidity of the US dollar is extremely abundant, leading to stronger expectations of the decline of the US dollar, leading to the sustained rise in the prices of commodities denominated in US dollars, including crude oil. On the same day, the governor of Brazil's central bank made it clear that inflation would be studied at the bank's next monetary policy meeting. Russia's central bank also said it would tighten monetary policy start a cycle of interest rate hikes.

Whether commodity prices can be stopped rising will depend largely on the attitude of the Federal Reserve. Economists are generally concerned about higher inflation. Some expect U.S. inflation to top 20% in the next two to three years, threatening a repeat of the hyperinflation of the 1970s. A report by Deutsche Bank warned of the dire consequences of the Fed ignoring inflation in pursuit of a full recovery, with an outbreak of inflation sitting on a "time bomb" for the global economy. This could lead to a severe recession a series of crises around the world.

The beggar-thy-neighbor practice of the United States at the expense of others is being counterattacked, the abuse of dollar hegemony is immune it. What's more, it reflects that the United States is a big country that dare make decisions, has no responsibility is irresponsible. The world needs to be vigilant work together to counter the damaging spillover effects of US inflation.

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Source: International Petroleum Network