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Why are crude oil prices rising? Concerns over Russian supplies 

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Crude oil price and dollar

Crude oil price and the dollar have always been linked. Oil prices rose on Monday amid positive sentiment on stock exchanges and a weakening U.S. dollar. Concerns over Russian supplies also supported the quotations. On the daily chart, the Brent futures form a kind of rising triangle with the upper bound of $107-108 per barrel. A break-up of this boundary might open the way to a further move to the area of $115-116 per barrel.

Why are crude oil prices rising? Russian oil and gas

As you can see, crude oil prices and charts began to rise on the back of recent news. Yesterday it became known that the flow of gas pipeline Nord Stream – 1 will again be limited. This time it is planned to shut down one more gas turbine engine “due to the end of the time between repairs”. Problems with gas supplies are perceived as an escalation of tensions between Russia and the EU in the energy sphere and increase anxiety in the market over Russian hydrocarbon supplies. Against such a backdrop, oil futures buyers are feeling more confident.

The volume of Russian exports is one of the key uncertainties in the second half of 2022 and in 2023. In December comes into force the European embargo on maritime oil supplies from Russia, and in February 2023 on the supply of petroleum products. Whether Russia will be able to avoid production cuts depends on how successful it will be in redirecting supplies to Asia. As of July 15, the average volume of Russian oil supplies to the Asian region was 1.7 million b/d, compared to 1.2 million b/d in January 2022. 1.3 million b/d is still going to Europe, for which new buyers have yet to be found.

Fed meeting

Tomorrow, the U.S. regulator will make an interest rate decision. According to the FedWatch Tool, markets are laying 77% odds that the rate will rise by 0.75pc, with another 23% accounting for 1pc. Even more important will be the Fed’s view of future monetary policy: whether the regulator is willing to raise rates further in an attempt to cool inflation. The more decisive the Fed will be in raising rates, the more the markets will fear an economic recession and a possible cooling of oil demand. Lower demand could make up for capacity shortages and lower prices. Crude oil prices and futures began to rise. 

WTI contracts at $8.5 lower

U.S. WTI discount to Brent by more than $8 a barrel amid cooling U.S. gasoline demand. Gasoline prices have been falling steadily over the past week. The national average price per gallon was $4,355, down from $4,521 a week ago, according to the AAA Automobile Association. Experts expect a $4 per gallon increase in the coming weeks.

Why are crude oil prices rising today? Demand for gasoline cannot be called weak, but it is lower than it was in July of last year. Last week, EIA data showed fuel inventories rising, and that put pressure on prices, even though the rest of the indicators were rather bullish. This week, the dynamics of gasoline inventories in the U.S. may remain the focus of investors’ attention.

As of this morning, Brent futures are up 1.8% and trading around $107 a barrel.



Commodities

Brent crude oil futures its lowest since 2021 amid banking crisis

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Brent crude oil futures

The cost of May futures on Brent crude oil fell to $72.74 per barrel, losing 0.31%, according to data from the ICE exchange. Brent was trading at about $70 a barrel at its low for the day. That’s a record low for at least 15 months, that is, since December 2021.

WTI prices are also falling, with futures prices down to $66.43 a barrel (-0.46% from last week’s close), according to the exchange. WTI was trading at $64.12 a barrel at its low for the day. This is also the lowest value since at least December 2021.

The market is thus responding to the banking crisis: since the beginning of March, three banks (Silvergate Bank, Silicon Valley Bank, Signature Bank) have closed their doors in the US, and the day before, on March 19, Swiss UBS took over its rival, Credit Suisse, buying the bank for $3.2bn amid fears of its collapse. Investors fear a recession, which may cause a crisis in the banking sector, as a recession, in turn, would lead to lower demand for fuel, the agency said.

“Oil prices are moving mainly because of fears [of further oil price dynamics]. Supply and demand fundamentals are almost unchanged, only the banking problems have an impact,” said Price Futures Group analyst Phil Flynn.

Oil prices lifted from daily lows helped the S&P 500 and Dow Jones indices, which rose Monday, writes Reuters. Traders raised their expectations that the U.S. Federal Reserve would refuse to raise rates this Wednesday to protect financial stability amid banking problems, the agency noted.

“Volatility is likely to persist this week, with broader financial market concerns likely to remain at the forefront,” ING Bank analysts said in a note. They add that the impending Fed decision adds to uncertainty in markets.

Earlier we reported that the price of Brent dropped below $75 per barrel for the first time in more than a year.

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Gold prices will reach $2,075 “in the coming weeks”

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Gold prices will reach

Gold prices may continue to rise, analysts polled by the CNBC TV channel said. In their opinion, the difficulties of banks and a possible turning point in the policy of the Federal Reserve indicate the possibility of a new rise in gold prices.

“I think it’s likely that we’ll see a strong move in gold in the coming months. The stars seem to be aligned for gold, and it could soon break new highs,” said Craig Erlam, senior market analyst at brokerage Oanda.

The expert explained that interest rates are now at or close to their peak, and the market, amid recent developments in the banking sector, is laying on an earlier than previously expected start of rate cuts. They also added that this situation would boost demand for gold even if the U.S. dollar weakens.

This month, Fitch Solutions rating agency predicted that gold prices would reach $2,075 an ounce “in the coming weeks” amid global financial instability, writes RBC. The company also added that gold prices will remain at a higher than pre-pandemic levels in the coming years. Craig Erlam confirmed this forecast.

Other Wall Street experts are also predicting a long-term rise in gold prices. For instance, Tina Teng, analyst for British financial company CMC Markets, thinks that the U.S. Federal Reserve’s sooner departure from its policy of raising interest rates might provoke another rally in gold prices due to the weakening U.S. dollar and falling bond yields.

Earlier we reported that oil prices accelerated their decline, continuing a trend from the beginning of the week.

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Analysts at U.S. bank Goldman Sachs revised its forecast on oil prices

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oil price forecast

Analysts at U.S. bank Goldman Sachs, one of the most optimistic forecasts about the cost of oil, changed its earlier forecast about the growth of oil prices to $100 in the next 12 months, Bloomberg said.

Now analysts predict that Brent crude oil will reach $94 per barrel in the next 12 months and $97 per barrel in the second half of 2024, the publication said.

The bank said oil prices have fallen despite rising demand in China, given pressure on the banking sector, recession fears and investor withdrawal.

“Historically, after such traumatic events, price adjustments and recoveries are only gradual,” the bank notes.

This week, the situation surrounding Swiss bank Credit Suisse triggered panic in the markets as oil plummeted to a 15-month low and Brent crude fell 12% to below $73 a barrel.

After the price decline, the bank expects OPEC producers to increase production only in the third quarter of 2024, contrary to Goldman’s forecast that it will happen in the second half of 2023. Analysts at the bank believe a barrel of Brent blend will reach $94 in the next 12 months and trade at $97 in the second half of 2024.

Bloomberg reported that the largest oil exporter, Saudi Arabia, announced higher April oil prices for markets in Asia and Europe.

Earlier, we reported that Iraq and OPEC advocated for guarantees of no fluctuations in oil prices.

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