Weekly Crude Oil Review: The sharp drop in the US dollar is good for the oil market and the demand side is still strong which is confirmed by it
US crude oil was up about 3.88% this week and Brent oil was up about 3.47% this week, ending the continued decline in the previous two weeks. Oil prices were buoyant as the US dollar index weakened for two consecutive weeks, narrowing its decline this week to around 0.83% after falling 1.25% last week. Market sentiment has turned positive, but supply remains limited. At 7:06 pm on October 28, Beijing time, US crude oil was quoted at $ 88.40 a barrel.
A weaker dollar helps support oil prices
A Wall Street Journal report on Friday said Fed officials have begun testing their willingness to slow the pace of rate hikes early. The report caused market repricing. The pace of sharp monetary tightening by the US Federal Reserve this year, aimed at curbing stubbornly high inflation, has given the dollar a huge boost.
The Bank of Canada (BOC) hiked interest rates 50 basis points lower than expected this week and said future rate hikes would be affected by its assessment of the effect of the tightening on slowing demand and easing credit. ‘inflation. This rate hike is the second consecutive time that the Canadian dollar has cut interest rates by 100 basis points in July and 75 basis points in September.
Traders and economists expect the Fed to raise interest rates a quarter in a row by 75 basis points next Wednesday, but there is a growing consensus that the Fed will slow the pace of rate hikes to 50 basis points in December as officials It will take time to assess the impact of policies on economic conditions. After December, the pace of tightening is likely to slow sharply. Against this backdrop, the BOC move appears to have reinforced market speculation on the Fed.
The good news on the inflation front is that the chain-weighted price index, a measure of the cost of living adjusted to consumer behavior, rose 4.1% in the third quarter, well below the market forecast. by 5.3%, largely due to an increase in energy prices. Additionally, the PCE price index, the Fed’s key measure of inflation, rose 4.2%, down from 7.5% the previous quarter. Core prices, excluding food and energy, rose 4.5%, broadly in line with Wall Street expectations.
A weaker US dollar this week provided support for oil prices as the recent strength of the US dollar was a notable factor holding back oil price gains. The dollar makes oil cheaper for holders of other currencies. After hitting a 20-year high against a basket of six major currencies, the US dollar fell to a one-month low on expectations that the Federal Reserve will finally ease its resolve to drastically raise interest rates.
demand side
1. US crude oil exports hit record highs, confirming demand remains strong
According to weekly US government data, US crude oil inventories increased by 2.6 million barrels last week, more than expected but below the 4.5 million barrels shown by the industry data. Crude oil exports rose to an all-time high of 5.1 million barrels per day, while net crude imports from the United States fell to an all-time low.
Overall, despite modest growth in U.S. commercial crude oil inventories driven by the export market, demand has turned positive, a rather positive sign that outweighs concerns about weaker demand in Asia.
2. Positive US GDP growth in the third quarter eases recession fears
The U.S. economy first turned positive in the third quarter of 2022, at least temporarily easing recession fears, the U.S. Bureau of Economic Analysis (BEA) reported this week. Combined GDP of all goods and services produced in the July-September period increased 2.6% at an annualized rate of 2.6%, according to preliminary estimates, beating the Dow Jones estimate of 2.3%. The increase was largely due to a narrowing of the trade deficit, which lifted US GDP from the shadow of two consecutive quarters of negative growth.
supply side
Supply remains scarce as OPEC + cuts and bans the EU from Russian oil
OPEC + unexpectedly lowered its production target earlier this month, announcing a 2 million barrels per day cut in November. Oil analysts expect supply to be limited in the coming months after the move. An EU embargo on Russian oil in December will exacerbate supply constraints, and many analysts believe Russia will be able to circumvent the measures, but could still lead to a closure of 1 million to 2 million barrels per day of Russian oil. and it could hit the spirits market.
The EU ban, which would also restrict Russian shipping companies’ access to the global maritime insurance sector, could restrict the global shipping market, which could also raise oil prices. JPMorgan analysts believe that until 2024, oil prices will be heavily influenced by the availability of tankers willing to transport Russian oil, rather than global supply and demand fundamentals, which will keep prices high.
