2022-03-07 • Updated
Oil markets were under great pressure amid increased demand and falling supply. OPEC+ is unable or unwilling to achieve its self-imposed production targets and insists on limiting production increases by 400,000 barrels per day despite rising prices. In addition, US producers are unable or unwilling to increase US oil supplies.
Inflation is a number one concern for the markets and everyone has a right to fear. Inflation in the US has jumped to a 40-year high of 7.5%. Inflation in the Eurozone hit an all-time high at 5.8%. It is not much different in the UK, where inflation has reached 5.5%, the highest level in 30 years.
The war between Russia and Ukraine has only made matters worse. If Russian oil and gas supplies are interrupted due to sanctions or by order of the Kremlin to respond to the sanctions, this could drive prices crazy, even before we see an actual impact on demand from the disappearance of Russian oil from the market.
Although the sanctions imposed by the West so far do not target Russian energy exports, after the Russian invasion of Ukraine, Russian shipments became toxic for most traders, insurance companies, and tanker owners. Some refiners and traders are concerned about how financial transactions will work after Russian banks are excluded from the SWIFT system. Others are running away to avoid harming their reputation.
JPMorgan thinks that 66% of Russian oil will struggle to find buyers and expects crude oil prices to reach $185 by the end of the year if Russian oil remains without a buyer. If the Russian energy sector comes under sanctions, or if Germany moves to halt Nord Stream 2 gas pipeline, and if the US fails to reach a nuclear deal with Iran, all of these factors could curb global oil supplies. Together, they will push prices up even more.
If energy prices go up, inflation will be the first to be affected. This will have fatal consequences for Russia, but it will also increase cost-of-living pressures in the West.
Even before oil prices rose above $110 a barrel, analysts lowered growth forecasts and raised inflation estimates. If Russian energy sector is included in the list of targets, this will mean oil and gas will be more expensive for longer. In the scenario of the oil reaching $150 and remaining above $100 until early 2023, the pressure on consumers will increase. The economy and businesses will also be hit hard, with higher energy costs and lower demand hurting profits. This will increase the risk of turning the economic slowdown into a recession with growing inflation globally.
It is still unknown how the US economy will respond to the oil shock that has sent crude oil prices above $125 a barrel.
The US economy can withstand six months of oil prices at an average of $100, although it may deepen the inflation problem. However, it is almost certain that if oil remains around $125, it will lead to a halt in growth and higher unemployment rates, which could turn into a recession. Another question is how central banks will respond to rising oil prices. Federal Reserve Chairman Jerome Powell said events in Ukraine would not stop the US central bank's plans to start raising interest rates. What is not yet clear is the extent and the speed of rate hikes.
Finally, the economic impact of the invasion of Ukraine will come in the form of slowing US economic growth with higher inflation, while the European economy may enter a recession. Russia will plunge into a deep double-digit recession.
The US dollar index rose to 99.00. For now, the greenback enjoys safe haven demand. Support is at 97.50.
Crude oil futures surged on Monday due to disruptions in Russian refining capacity caused by Ukrainian drone strikes and Moscow's decision to cut output to comply with OPEC+ targets. The West Texas Intermediate (WTI) contract for May settled at $81.95 a barrel, up $1.32, while the Brent contract for May settled at $86.57 a barrel, also up $1.32. Russia instructed...
Brent oil is currently on a bullish trend, facing resistance near $84 and supported by the 200-day EMA. Breaking above this level could lead to a climb towards $90. Short-term support is observed around $80, backed by the 50-day EMA. As summer approaches and travel increases, crude oil tends to benefit from seasonal patterns. Despite temporary setbacks, buying...
Amid uncertainty driven by geopolitical events, oil prices surged to record highs. However, a correction in oil prices is observed with a gradual improvement in the situation in the Middle East and an increase in demand. The question facing investors is whether there are prerequisites for further price growth or if everything depends on the dynamics of the political landscape. In this article, we will explore the impact of recent events on the global oil market and the prospects for developing this crucial commodity sector.
Jerome H. Powell, the Federal Reserve chair, stated that the central bank can afford to be patient in deciding when to cut interest rates, citing easing inflation and stable economic growth. Powell emphasized the Fed's independence from political influences, particularly relevant as the election season nears. The Fed had raised interest rates to 5.3 ...
Hello again my friends, it’s time for another episode of “What to Trade,” this time, for the month of April. As usual, I present to you some of my most anticipated trade ideas for the month of April, according to my technical analysis style. I therefore encourage you to do your due diligence, as always, and manage your risks appropriately.
Bearish scenario: Sell below 1.0820 / 1.0841... Bullish scenario: Buy above 1.0827...
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