From the supply factor for oil prices, Russia has flooded the markets with massive amounts of oil, causing a demand-supply disruption
On Tuesday, January 30, oil prices stabilized after recovering from their three-week lows. Such volatility came in anticipation of further interest rate hikes by the Fed. Important economic data releases are also lined up this week, combined with the central banks meeting and OPEC’s review meeting too. Moreover, from the supply factor for oil prices, Russia has flooded the markets with massive amounts of oil, causing a demand-supply disruption.
The UK Brent Crude March futures were trading lower by 0.68 percent or, in value terms, 58 cents, taking the prices south to $84.32 per barrel by 1512 GMT. This price point was last seen on January 13.
The March contract was expiring on Tuesday, so the next traded contract of April was high in liquidity because of position rollover by traders. The prices of the April contract fell by 0.28 percent, in value terms 24 cents, tanking the price to $84.74.
Brent’s peer, the US West Texas Intermediate (WTI) crude futures, went higher by 0.28 percent, or 22 cents, taking the price to $78.12 a barrel. This price is lower than its price on January 11.
Brent and WTI are being traded around the price point seen last three weeks earlier.
US markets opened marginally on the higher side on Tuesday because of positive wage growth data that signaled weakening inflationary pressure. This positive news is highly considered before the Federal Reserve’s meeting on the interest rate.
Fear of FED
Investors and traders expect a further 25 basis points rate hike by the Federal Reserve. The Bank of England and the European Central Bank (ECB) will be following the footsteps of the Fed and are expected to raise their interest rates by 50 basis points.
Market participants expect a rate hike at the Federal Open Market Committee’s meeting to be held from Jan 1-Feb 1. This meeting is expected to bring the policy rate in the range of 4.5 percent to 4.75 percent. The rates are expected to rise to 4.9 percent by mid-year and then cool down to 4.5 percent by the year’s end.
Globally, the developed and emerging markets stocks are witnessing a selloff since Monday after having enjoyed gains in the last few sessions. Ahead of the central bank meeting and the economic data coming up in the following days, the US treasury yield has moved higher. The benchmark 10-year yield notes were higher by 2.6 basis points, from 3.518 percent to 3.544 percent, at the closing of markets on Friday.
Higher interest rates soak up money from the markets, leaving little for banks to lend money to corporates. Hence it leads to a slowing down of the whole economy.
OPEC signals relief
On Wednesday, an OPEC panel meeting was scheduled for their oil output review. Analysts expect the oil output to fall in the upcoming months from the whole cartel. But some delegates of the Organisation of the Petroleum Exporting Countries told Reuters earlier this Monday that oil output is likely to be unchanged as per recommendations to be made by the OPEC panel.
On the other hand, according to the National Bureau of Statistics (NBS), China’s Purchasing Managers Index (PMI), which is responsible for measuring manufacturing activity, has risen in January compared to December.
The economic recovery in China hints towards a positive future for oil demand. Still, the supply side is dicey due to the constant sanctioning of Russia by the European Union. The recent sanction is on refined Russian products.