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Fed Raises Recession Risks

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By Craig Erlam, Senior Market Analyst, UK & EMEA, OANDA

Stock markets are back in the red on Thursday as further hawkish commentary from the Fed increases the odds of a recession over the next couple of years.

The soft landing that the Fed so desires is easier said than done, especially in an environment when inflation is so high and energy prices are through the roof. And when you consider the kind of tightening that’s being proposed, the economy is going to have to display incredible resilience to weather the storm.

The central bank has quickly gone from fighting the market to standing shoulder to shoulder with it. The next few meetings are likely to deliver three super-sized rate hikes it seems and that could be ramped up further if we don’t see some progress on inflation in that time.

Policymakers are clearly spooked by the data we’ve seen over the last couple of months and when faced with dealing with soaring inflation and supporting the economy, there’s only ever going to be one winner. They better hope any recession is mild and short-lived or the decision to drag their feet on starting the tightening cycle will look even more negligent.

Oil below $100 after IEA and EIA

Oil prices are slipping again today after falling more than 5% on Wednesday. The combination of the IEA reserve release and EIA inventory data sent prices tumbling yesterday and suddenly a world of double-figure oil looks possible.

That wouldn’t have been something to celebrate only a few months ago but a lot has changed since then. There are still plenty of upside risks to those prices despite the best efforts of those involved in the SPR release. But 240 million barrels is a substantial move that will help to offset the disruptions we’ve seen and allow time for US shale and OPEC+ to fill the void.

Gold sideways as other markets react to the Fed

The consolidation we’ve seen in gold in recent weeks has not been interrupted by the hawkish commentary we’ve had from the Fed over the last few days. While other areas of the market have reacted strongly to the comments, gold has been steady and if anything, the ranges have tightened.

Perhaps this is a sign of the enormous uncertainty in the outlook or the combination of high inflation and economic risks associated with it, and events elsewhere. There’s clearly a reluctance to let go of a safe haven and inflation hedge that’s been so sought after this year.

Bitcoin slips again after the Fed minutes

Bitcoin has come under pressure alongside other risks assets as a hawkish Fed has sapped demand for the cryptocurrency. It fell more than 4% on Wednesday and is down a little shy of 2% today. The crypto conference in Miami could have driven some excitement in the space that may have benefited the price, or so goes the narrative anyway, but that doesn’t appear to be happening this time around. I’m sure President Bukele is only seeing the positives in the latest downturn.

Is the CEO/Founder of Investors King Limited. A proven foreign exchange research analyst and a published author on Yahoo Finance, Businessinsider, Nasdaq, Entrepreneur.com, Investorplace, and many more. He has over two decades of experience in global financial markets.

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Crude Oil

Brent Crude Hovers Above $84 as Demand Rises in U.S. and China

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Crude Oil - Investors King

Brent crude oil continued its upward trajectory above $84 a barrel as demand in the United States and China, the two largest consumers of crude globally increased.

This surge in demand coupled with geopolitical tensions in the Middle East has bolstered oil markets, maintaining Brent crude’s resilience above $84 a barrel.

The latest data revealed a surge in demand, particularly in the U.S. where falling crude inventories coincided with higher refinery runs.

This trend indicates growing consumption patterns and a positive outlook for oil demand in the world’s largest economy.

In China, oil imports for April exceeded last year’s figures, driven by signs of improving trade activity, as exports and imports returned to growth after a previous contraction.

ANZ Research analysts highlighted the ongoing strength in demand from China, suggesting that this could keep commodity markets well supported in the near term.

The positive momentum in demand from these key economies has provided a significant boost to oil prices in recent trading sessions.

However, amidst these bullish indicators, geopolitical tensions in the Middle East have added further support to oil markets. Reports of a Ukrainian drone attack setting fire to an oil refinery in Russia’s Kaluga region have heightened concerns about supply disruptions and escalated tensions in the region.

Also, ongoing conflict in the Gaza Strip has fueled apprehensions of broader unrest, particularly given Iran’s support for Palestinian group Hamas.

Citi analysts emphasized the geopolitical risks facing the oil market, pointing to Israel’s actions in Rafah and growing tensions along its northern border. They cautioned that such risks could persist throughout the second quarter of 2024.

Despite the current bullish sentiment, analysts anticipate a moderation in oil prices as global demand growth appears to be moderating with Brent crude expected to average $86 a barrel in the second quarter and $74 in the third quarter.

The combination of robust demand from key economies like the U.S. and China, coupled with geopolitical tensions in the Middle East, continues to influence oil markets with Brent crude hovering above $84 a barrel.

As investors closely monitor developments in both demand dynamics and geopolitical events, the outlook for oil prices remains subject to ongoing market volatility and uncertainty.

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Crude Oil

Brent Plunges Below $83 Amidst Rising US Stockpiles and Middle East Uncertainty

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Brent crude oil - Investors King

The global oil declined today as Brent crude prices plummeted below $83 per barrel, its lowest level since mid-March.

This steep decline comes amidst a confluence of factors, including a worrisome surge in US oil inventories and escalating geopolitical tensions in the Middle East.

On the commodity exchanges, Brent crude, the international benchmark for oil prices, experienced a sharp decline, dipping below the psychologically crucial threshold of $83 per barrel.

West Texas Intermediate (WTI) crude oil, the US benchmark, also saw a notable decrease to $77 per barrel.

The downward spiral in oil prices has been attributed to a plethora of factors rattling the market’s stability.

One of the primary drivers behind the recent slump in oil prices is the mounting stockpiles of crude oil in the United States.

According to industry estimates, crude inventories at Cushing, Oklahoma, the delivery point for WTI futures contracts, surged by over 1 million barrels last week.

Also, reports indicate a significant buildup in nationwide holdings of gasoline and distillates, further exacerbating concerns about oversupply in the market.

Meanwhile, geopolitical tensions in the Middle East continue to add a layer of uncertainty to the oil market dynamics.

The Israeli military’s incursion into the Gazan city of Rafah has intensified concerns about the potential escalation of conflicts in the region.

Despite efforts to broker a truce between Israel and Hamas, designated as a terrorist organization by both the US and the European Union, a lasting peace agreement remains elusive, fostering an environment of instability that reverberates across global energy markets.

Analysts and investors alike are closely monitoring these developments, with many expressing apprehension about the implications for oil prices in the near term.

The recent downturn in oil prices reflects a broader trend of market pessimism, with indicators such as timespreads and processing margins signaling a weakening outlook for the commodity.

The narrowing of Brent and WTI’s prompt spreads to multi-month lows suggests that market conditions are becoming increasingly less favorable for oil producers.

Furthermore, the strengthening of the US dollar is compounding the challenges facing the oil market, as a stronger dollar renders commodities more expensive for investors using other currencies.

The dollar’s upward trajectory, coupled with oil’s breach below its 100-day moving average, has intensified selling pressure on crude futures, exacerbating the latest bout of price weakness.

In the face of these headwinds, some market observers remain cautiously optimistic, citing ongoing supply-side risks as a potential source of support for oil prices.

Factors such as the upcoming June meeting of the Organization of the Petroleum Exporting Countries (OPEC+) and the prospect of renewed curbs on Iranian and Venezuelan oil production could potentially mitigate downward pressure on prices in the coming months.

However, uncertainties surrounding the trajectory of global oil demand, geopolitical developments, and the efficacy of OPEC+ supply policies continue to cast a shadow of uncertainty over the oil market outlook.

As traders await official data on crude inventories and monitor geopolitical developments in the Middle East, the coming days are likely to be marked by heightened volatility and uncertainty in the oil markets.

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Crude Oil

Oil Prices Climb on Renewed Middle East Concerns and Saudi Supply Signals

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Crude oil

As global markets continue to navigate through geopolitical uncertainties, oil prices rose on Monday on renewed concerns in the Middle East and signals from Saudi Arabia regarding its crude supply.

Brent crude oil, against which Nigeria’s oil is priced, surged by 51 cents to $83.47 a barrel while U.S. West Texas Intermediate crude oil rose by 53 cents to $78.64 a barrel.

The recent escalation in tensions between Israel and Hamas has amplified fears of a widening conflict in the key oil-producing region, prompting investors to closely monitor developments.

Talks for a ceasefire in Gaza have been underway, but prospects for a deal appeared slim as Hamas reiterated its demand for an end to the war in exchange for the release of hostages, a demand rejected by Israeli Prime Minister Benjamin Netanyahu.

The uncertainty surrounding the conflict was further exacerbated on Monday when Israel’s military called on Palestinian civilians to evacuate Rafah as part of a ‘limited scope’ operation, sparking concerns of a potential ground assault.

Analysts warned that such developments risk derailing ceasefire negotiations and reigniting geopolitical tensions in the Middle East.

Adding to the bullish sentiment, Saudi Arabia announced an increase in the official selling prices (OSPs) for its crude sold to Asia, Northwest Europe, and the Mediterranean in June.

This move signaled the kingdom’s anticipation of strong demand during the summer months and contributed to the upward pressure on oil prices.

The uptick in prices comes after both Brent and WTI crude futures posted their steepest weekly losses in three months last week, reflecting concerns over weak U.S. jobs data and the timing of a potential Federal Reserve interest rate cut.

However, with most of the long positions in oil cleared last week, analysts suggest that the risks are skewed towards a rebound in prices in the early part of this week, particularly for WTI prices towards the $80 mark.

Meanwhile, in China, the world’s largest crude importer, services activity remained in expansionary territory for the 16th consecutive month, signaling a sustained economic recovery.

Also, U.S. energy companies reduced the number of oil and natural gas rigs operating for the second consecutive week, indicating a potential tightening of supply in the near term.

As global markets continue to navigate through geopolitical uncertainties and supply dynamics, investors remain vigilant, closely monitoring developments in the Middle East and their impact on oil prices.

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