Oil struggles higher on Fed fears as analysts express varying degrees of pessimism
Meanwhile, OPEC is again failing to meet its exit targets: File Image/Pixabay
Oil made modest gains on Monday on a weakening WE dollar and traders await what many analysts believe to be a 73 basis point hike enacted by the Federal Reserve – which critics say will make recession fully bloom in this country.
In fact, earlier in the session, oil prices fell 3.5% because of Fed fears, and Robert Yawgerdirector of the futures division at Mizuho Securities United Statescalled the ensuing rally a “gut reaction to the oversold situation we experienced this morning; I’d be surprised if we hold onto those gains over the next two days.”
For memory, fitch reviews provide that the Eurozone and UK are now expected to enter recession later this year, while the US will experience a mild recession in mid-2023; as a result, Fitch cut its global GDP growth forecast to 2.4 percent in 2022, down 0.5 percentage points from the June forecast.
I would be surprised if we hold on to these gains over the next few days
Robert Yawger, Mizuho Securities United States
Global economic growth is now expected at just 1.7% in 2023.
Adding to Monday’s bearish sentiment was the Riyadh-based International Energy Forum signaling that global oil demand in July fell by 1.1 million barrels per day (bpd) in a period when oil consumption generally increases; also Joint Organization Data Initiative noted that ChinaCrude oil imports and oil use in refineries were down year-on-year.
West Texas Intermediate rose on Monday 62 cents settle at $85.73 per barrel, and Brent pink 65 cents settle at $92 per barrel.
Also note Monday, the Organization of Petroleum Exporting Countries (OPEC), which has threatened to cut production because it does not believe lower oil prices are correlated to the physical market, has missed its production target of 3.5 million bpd in August, according to an internal document (OPEC missed its target in July of 2.8 million bpd).
For those who focused not on the prospect of falling demand but on the very real situation of tight supply, OPEC’s failure was troubling: Andrew Lipowpresident of Lipow Oil Associatessaid: “The OPEC+ production surveys being so far below their quotas for August gives the market the feeling that they are simply unable to increase production if the market demands it.”
Looking ahead, analysts expressed, as usual, conflicting views on the oil market: some experts argued that China starting to ease some of its Covid restrictions in some cities would provide support, but ANZ analysts were concerned that “the market still has the start of European sanctions against Russian oil hanging over it…as supply is interrupted in early December, the market is unlikely to see a quick response from American producers.
For its part, John Kempsenior market analyst for Reuters, said despite a strong U.S. job market and high level of economic activity, financial markets point to greater chances of a slowdown major over the next year that “would curb oil consumption and lead to lower prices”.