At the start of 2023, several factors come into play to determine the short to medium term trend for oil prices this year. Supply and demand concerns, global monetary policy tightening, expectations of a significant slowdown in economic growth and possible recessions, and the reopening of China with a wave Covid exit all have an impact on crude oil prices.
In the first week of the year, oil prices fell 9% in the first two trading days, the worst start to the year since 1991. The price of Crude Brent fell below year-ago levels for the first time in two years, possibly suggesting that “broader inflation has peaked and could fall rapidly in the coming months,” the report said. Reuters columnist Jamie McGeever. Remarks.
The annual change in the US benchmark index, Crude WTIhas also turned negative several times over the past two months. Base effects, i.e. prices and the rate of inflation compared to the same period last year, are down and could signal deflation in energy commodities, which could intensify the decline broader inflation to get closer to the Fed’s 2% target, according to McGeever. .
Yet the Fed is not abandoning its hawkish stance and its determination to fight inflation which is “persistent” and at an “unacceptable level”, according to the minutes of the Federal Open Market Committee (FOMC) from the December meeting released this week.
“None of the participants had anticipated that it would be appropriate to begin reducing the federal funds rate target in 2023. Participants generally observed that a restrictive policy should be maintained until incoming data gives the assurance that inflation was on a sustained downward path to 2%, which should take some time,” the Fed said.
“Participants agreed that the inflation data received for October and November showed welcome reductions in the monthly pace of price increases, but stressed that much more evidence of progress would be needed to be convinced that inflation was on a sustained downward trajectory,” according to FOMC minutes. Related: The rise in oil prices is limited
This week, Federal Reserve Bank of St. Louis Chairman James Bullard said the prospect of a soft landing as the U.S. economy grew relative to fall 2022, thanks to a strong and resilient labor market.
“The policy rate is not yet in an area that can be considered tight enough, but it is getting closer,” Bullard said in a presentation Thursday.
Nevertheless, fears of a recession persist. The current weakness in oil demand in the United States and China adds to the short-term bearish outlook for oil prices.
Oil is trying to rally, but demand concerns are limiting gains.? The Saudis are slashing prices as the near-term crude demand outlook does not appear to be getting a major boost from a robust reopening of China,” Ed Moya, Senior Market Analyst, Americas, OANDA, said Thursday when oil prices increased higher after the massive sell-off on Tuesday and Wednesday.
However, the EIA’s weekly report indicates that implied demand for gasoline fell the most last week since March 2020, and demand for crude oil and distillates recorded significant drops from a year ago. week, Moya noted.
ING strategists said On Thursday, “the oil market looks better supplied in the near term and risks are likely on the downside. However, our oil balance sheet starts to show market tightening from the second quarter through the end of the year, suggesting that we should see stronger prices starting in 2Q23. »
According to the broker PVM oil“There is no doubt that the prevailing trend is down, it is a bear market.”
“Readily available Russian crude also played its part in the continued decline, as did the coordinated SPR release. The question now is whether these forces will be in play throughout 2023 and whether lower oil prices will be the main theme this year.
By Tsvetana Paraskova for Oilprcie.com
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