The price of oil may rise to $115-116 per barrel. The ambitious plans of G7 may be broken because of the difference of interests. The day before, oil prices grew amid moderately harsh rhetoric from the U.S. Federal Reserve and bullish statistics from the country’s Energy Department. According to London’s ICE, Brent crude was at $107.8 at the time of writing. Who benefits from rising oil prices?
Cause of rising oil prices
Commercial oil inventories in the US fell by 4.5 mln barrels, while stocks in Strategic Petroleum Reserve (SPR) decreased by 5.6 mln barrels. This happened despite an increase in production by 200,000 bpd to 12.1 mln bpd. The reason was a surge in exports: black gold shipments to foreign markets increased by 1.5 million bpd, of which a little more than half were crude oil.
There was a trend last week which indicated weak gasoline demand, but it was not confirmed in the latest data. Gasoline inventories fell by 3.3 million barrels. Consumption of the resource jumped 0.7 million bpd to 9.2 million bpd, and RBOB futures have added 6% since the beginning of the week.
Total petroleum product shipments fell 1 million bpd, to 20 million bpd, due to declines in the propane/propylene categories (a seasonal factor) and other (regression to the average after the spike). Overall, demand remains strong, which is helping oil prices.
Also, the day before, the U.S. Federal Reserve raised the benchmark rate by 0.75 p.p., to 2.5%, which was expected. The regulator expects the rate to be at the level of 3-3.5% by the end of the year. Markets were expecting more hikes, so equities and commodities traded positive after the meeting. The lower the interest rates, the lower the risks of recession and oil demand destruction.
The next meeting of the U.S. regulator will be held on September 20-21. Until then, the market will be keeping an eye on inflation, employment, and business activity indicators. How do rising oil prices affect inflation? It is speeding it up considerably.
The Fed’s decision was received positively, as there were some fears of a 100 bps rate hike, as the Head of The Regulator, Jerome Powell, said at a press conference that if necessary, the Fed would not hesitate to raise the rate even higher. but given the current data, it was considered advisable to raise it a little less.
The Fed’s rate is now at a long-term neutral level that neither accelerates nor slows economic growth. However, U.S. inflation remains at record levels since the 1980s – the June CPI reached 9.1% and the regulator intends to bring it down to 2%. Therefore, the Fed will continue to raise rates and reduce the balance sheet – since September, the volume of QT on the plan to double and reach $95 billion per month.
The market was positive about the absence of a 100bp rate hike, the Fed’s admission that the U.S. economy is slowing, and Powell’s statement that the scope of the next rate hikes could be reduced if inflation slows.
The regulator will have to continue to go further into territory where interest rates and financial conditions are leading to a slowdown in economic growth. After all, the rising oil prices effect on the economy is hard to overstate.
Gold prices creep lower as dollar, yields surge on hawkish Fedspeak
Investing.com– Gold prices fell in Asian trade on Tuesday, facing consistent pressure from a stronger dollar and higher Treasury yields as Federal Reserve officials reiterated the bank’s outlook for higher interest rates.
Minneapolis Fed President Neel Kashkari said in an address on late-Monday that he saw rates rising at least once more in 2023, and that they were likely to remain higher through 2024.
His comments echoed those made by Fed Chair Jerome Powell last week, who said that sticky inflation and a tight labor market will likely elicit one more rate hike this year. Powell also downplayed expectations for a large band of rate cuts next year, with the Fed’s target rate through 2024.
The outlook for higher rates dented gold’s prospects, given that higher yields push up the opportunity cost of investing in the non-yielding asset. This weighed particularly on the outlook for prices, with gold futures losing more than the spot price in recent sessions.
fell 0.1% to $1,913.62 an ounce, while expiring in December fell 0.2% to $1,932.25 an ounce by 00:02 ET (04:02 GMT). Both instruments were at a 11-day low.
Dollar at 10-mth peak, yields hit 16-year high with shutdown in focus
Pressure on metal markets came chiefly from a stronger greenback, as the Fed’s hawkish rhetoric pushed the to its highest level in 10 months against a basket of currencies.
Treasury yields also surged in the wake of the Fed’s meeting last week, with the at its highest since 2007.
Growing fears of a U.S. government shutdown did little to deter the dollar’s advance, with higher rates also increasing the greenback’s safe haven appeal over gold.
Congress has less than a week to pass a spending bill and avert a shutdown. But both Republican and Democrat leaders indicated little progress was being made towards reaching consensus.
While gold is a safe haven, it has seen little actual gains during past government shutdowns. The 2018-2019 shutdown, which was the longest in U.S. history at 35 days, only saw a $20 appreciation in spot prices.
Copper prices dip, China jitters persist
Among industrial metals, copper prices extended losses on Tuesday amid persistent concerns over an economic slowdown in China, the world’s largest copper importer.
Sentiment towards the country was dealt a fresh blow this week as beleaguered property developer China Evergrande Group (HK:) said it will be unable to issue new debt due to a government investigation. This ramped up concerns over more regulatory scrutiny towards the sector, which is already struggling with a three year-long cash crunch.
The property sector is also a key driver of copper demand. fell 0.1% to $3.702 a pound, and were close to 1-½ month lows.
Focus this week is now on data from China for more cues on business activity.
Oil prices inch lower as Fed, China fears dent outlook
Investing.com– Oil prices fell slightly in Asian trade on Tuesday amid growing fears that higher-for-longer U.S. interest rates will weigh on demand, while renewed concerns over China’s economy also dented sentiment.
Strength in the put a damper on oil prices, as hawkish signals from the Federal Reserve saw the greenback scale a 10-month peak, pushing up crude costs for international buyers.
Markets also grew increasingly wary of more increases in U.S. rates, which are expected to weigh on economic activity this year and potentially hurt crude demand. The Fed had recently warned that higher energy costs, in the wake of surging oil prices, will likely buoy inflation and further the need for higher rates.
In addition to Fed-related headwinds, oil markets were also grappling with renewed fears of an economic slowdown in China, the world’s largest oil importer, as analysts soured further on its growth prospects this year.
The negative trends saw traders question whether oil prices had the capacity for more gains, especially after they surged to 10-month highs earlier in September.
fell slightly to $91.69 a barrel, while fell 0.1% to $89.58 a barrel by 21:04 ET (01:04 GMT).
China fears persist amid GDP downgrades, PMIs awaited
A string of major brokerages and investment banks- most recently S&P Global and HSBC- downgraded their outlook for Chinese economic growth this year, with analysts warning that gross domestic product could only grow 4.8% in 2023- lower than the government’s 5% forecast.
The downgrades come just a few days before key Chinese (PMI) data for September, which is expected to show continued weakness in business activity.
While PMI readings for August had shown some improvement in manufacturing activity, service sector growth declined through the month.
Fears of a meltdown in the China’s massive property market also came to fore this week after embattled developer China Evergrande Group (HK:) warned that it was unable to issue new debt.
While China’s oil imports have remained largely robust this year, the country’s appetite for fuel has struggled to reach pre-COVID levels. Beijing also set higher fuel export quotas for the year, indicating that local demand remained weak.
On the supply front, expectations of tighter fuel markets in the northern hemisphere were slightly dented after Russia said its planned fuel export ban will be somewhat less severe than initially expected.
But oil markets are still expected to tighten substantially this year, following deep production cuts in Saudi Arabia and Russia. U.S. rig counts were also seen dropping to a 1-½ year low last week, while recent data showed a consistent decline in .
JPMorgan analysts expect oil prices to trend between $90 and $100 in the coming year.
Oil futures retreat amid global economic concerns and potential supply increases
Oil futures, which reached a peak in 2023 due to Saudi Arabia’s daily cut of 1 million barrels and restrictions imposed by Russia, have started to decline due to global economic anxieties and the Federal Reserve’s persisting high rates. This development comes despite expectations of a record 13.1 million barrels and an anticipated supply deficit by year-end.
The peak earlier this year was primarily influenced by Saudi Arabia’s decision to reduce its oil output by 1 million barrels per day, coupled with restrictions from Russia. However, recent global economic concerns and the Federal Reserve’s continued high rates have led to a downturn in oil futures.
Robert Yawger, an analyst at Mizuho, highlighted potential increases in oil supply. These include possible contributions from Iran, Iraqi Kurds via the Ceyhan pipeline, Suriname, and Guyana. These potential additions to the supply chain are significant factors to consider against a backdrop of a previously predicted $150 oil forecast.
Despite the anticipation of a record 13.1 million barrels and an expected supply deficit by the end of the year, these potential increases in oil supply could balance out the market dynamics. The evolving situation underscores the influence of global economic conditions and policy decisions on commodity markets.
Overall, these developments indicate that while production cuts and restrictions had previously driven oil prices to their peak in 2023, current global economic worries and potential increases in supply are exerting downward pressure on oil futures.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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