Recently, international crude oil prices have fallen and even hit a new low in over 8 months. Currently, Brent crude oil futures have fallen below US$85/barrel to US$80/barrel, while WTI crude oil futures have fallen below US$80/barrel. So far, WTI crude oil futures have given up all their gains for the year.
Against the dual backdrop of aggressive interest rate hikes by the Federal Reserve and concerns about a global recession, the US dollar index has soared, putting significant pressure on commodities. On the one hand, the current situation has triggered market concerns about the decline in crude oil demand, which is why oil prices have been falling significantly in recent times. Secondly, the US dollar has rallied higher, putting pressure on non-US dollar currencies and other countries that use US dollars to pay for crude oil shipments. Rising costs have affected many countries' appetite for crude oil. So will the demand for crude oil and crude oil prices rebound in the future? Or will they continue to fall into an abyss?
As the winter peak energy season approaches, the market is looking forward to a recovery in oil prices, mainly due to natural gas shortages. As a result, crude oil demand may increase. Furthermore, investment banks have remained optimistic that crude oil prices will rebound. Morgan Stanley recently said that oil prices have continued to fall throughout the summer, but as the supply side tightens over the next few months, Brent crude oil futures could return to $100. JPMorgan Chase said that the oversupply of crude oil in the markets would gradually evolve into a shortage starting in October.
On the other hand, according to the latest news, Europe's embargo on Russian crude oil is set to take effect in December this year. The move coincides with the peak winter energy demand season, which will help crude oil prices rebound to the 100 US dollar level or even above. Moreover, if there is still no substantial progress in the Iran nuclear deal talks, the country will be unable to release much-needed crude oil into the markets. As oil prices continue falling, the supply side is gradually becoming tighter.
However, global interest rate hikes continue, especially in the euro area, the United States and the United Kingdom. The global economy is in crisis because of the high inflation and energy crisis. The pound recently plummeted to a new 50-year low, which not only supports the US dollar’s strong trend but has become a critical factor restricting the rise of crude oil prices.
Crude oil investors must closely follow the trends in global macroeconomic data. If Europe and the United Kingdom fall into a further economic recession, the future recovery of oil prices may not be guaranteed. Judging from the recently released PMI data, the UK's September composite PMI fell from 49.6 in August to 48.4 in September; the Eurozone PMI fell to 48.2 from 48.9 in August, reflecting the decline in market sentiment in both Europe and the UK.
The inflation problem is still severe as we enter the winter season, and the market is worried that the interest rate hiking policy will not help the economy. Especially given the size of interest rate hikes in the UK is smaller than in other countries, which will affect its future performance. The economic prospects may be pessimistic, so the risk of crude oil prices depending on demand will remain.
This week, the market's attention is primarily focused on the ongoing public speeches and media interviews of more than 20 Fed officials, especially the Fed Chairman, who will appear twice this week on Tuesday and Wednesday. The market hopes to get more information about the Federal Reserve from Powell’s speeches. In addition, further guidance on interest rate policy, especially if the Fed continues to reiterate its hawkish stance, is highly likely. Although the crude oil supply side shows signs of tightening, negative market sentiment may keep commodities under pressure this week.