Oil Vs Interest Rates, Oil prices have been on a roller coaster ride in recent months,
and it looks like they may be headed for another dip.
Topics
Interest Rate Fear
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U.S. West Texas Oil
Interest Rate Fear
On Friday, oil prices slid in early trade, extending losses from the previous session.
The main drivers of this decline are fears that U.S.
interest rates will go higher than previously expected
and fresh concerns about Covid outbreaks dent fuel demand in China.
This news is likely to be a disappointment for traders
and investors who had been hoping for a rebound in oil prices after last week’s brief rally.
However, it’s important to remember that the market is still dealing with a lot of uncertainty right now
and anything could happen in the weeks ahead.
So, while oil prices may be down today, there’s still potential for them to rebound later on if conditions improve
Brent crude futures dropped by 22 cents, or 0.2%, to $94.45 a barrel at 0025 GMT after falling 1.5% in the previous session. The contract was on track to fall more than 1% for the week.
This is due largely in part to concerns about oversupply in the market and weak demand from China,
the world’s second-largest oil consumer.
Despite these concerns, there are still some traders and investors who remain bullish on Brent crude prices.
They point to factors such as ongoing tensions in Iraq and Libya as well as potential supply disruptions from Russia as reasons why prices could rebound soon.
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The Saudi government has announced a reduction in the official selling prices of its crude oil to customers in Asia.
This move will likely put upward pressure on global oil prices,
which have languished at around $85 per barrel for the past few weeks.
This news comes as a surprise to many analysts,
who had expected Saudi Arabia to maintain its current pricing strategy in the face of weak demand from Asia.
However, it appears that the Saudis are more concerned about losing market share in this key region than they are about short-term profits.
While this decision may help prop up global oil prices in the near term, it remains to be seen how long Saudi Arabia can sustain such a policy without jeopardizing its own economic interests.
In any case, this latest development is sure to add some much-needed volatility to an otherwise sleepy market.
In response to softer demand from China, Saudi Arabia lowered its official selling prices for Arab Light crude in December by 40 cents to a premium of $5.45 a barrel versus the Oman/Dubai average.
This move signals that the Kingdom is feeling the effects of the slowdown in the Chinese economy and is willing to take measures to maintain market share in Asia.
The decision was likely also influenced by Saudi Arabia’s need to defend its market share against other producers, such as Iran, which is ramping up production as sanctions are lifted.
The Kingdom has been under pressure to lower prices in order to stay competitive.
In the short term, this price cut may help boost sales of Saudi crude in Asia;
however, it remains to be seen how sustainable such a strategy will be over the longer term given current market conditions.
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U.S. West Texas Intermediate crude futures fell 27 cents, or 0.3%, to $87.90 a barrel, deepening a 2% loss from the previous session, but on course to end flat for the week as traders weigh conflicting signals on the health of the global economy.”
The recent drop in oil prices is a sign that investors are worried about a potential recession in the United States.
Federal Reserve Chairman Jerome Powell said that it was “very premature” to be thinking about pausing interest rate hikes, which added to fears of an economic slowdown”
However, oil prices are still relatively stable and are not expected to fall significantly in the near future.
Adding to the gloom, the Bank of England warned on Thursday that it thinks Britain has entered a recession and the economy might not grow for another two years.
This news sent shockwaves through global financial markets as investors scrambled to assess the implications for growth and oil demand.
The Fed’s rate hike cycle, which began in 2015, is widely seen as one of the key reasons why crude prices have been under pressure for much of 2018.
Higher rates make it more expensive to hold dollar-denominated assets such as oil, while also increasing borrowing costs for energy companies.
If Powell continues with his current course then this could lead to further weakness in oil prices and increase fears of a U.S. recession which would have devastating consequences for global growth and demand prospects.