Several investment banks believe that a more dovish Fed could send crude prices to $100 again.
China relaxing its covid-19 measures, the G7 oil price cap and OPEC+ undershooting its production targets is bullish for crude.The past couple of weeks have seen some good news for oil prices: China is relaxing its zero-Covid rules, the G7 and the European Union launched their price cap and embargo against Russia, and OPEC+ once again undershot its production target by a hefty 2 million bpd.
Yet none of this has been enough to stimulate institutional traders to start buying oil. On the contrary, large traders continue to be net sellers, according to Reuters’ John Kemp who follows trading balances in the six most traded crude and fuel contracts on a weeklyby Boston Consulting Group found that the overwhelming majority of bankers, like institutional traders, expect a recession next year in the United States and Canada.
On the silver linings side, however, expectations are for a mild recession, the survey also found. Yet mild or severe, a recession invariably means negative things for oil demand, which could provide one explanation for traders’ attitudes and the resulting price moves. Among these things are lower purchasing power, resulting in lower spending and, therefore, lower demand for oil.
The U.S. central bank has been aggressive in its handling of runaway inflation, which the Fed initially dismissed as transitory, only to admit later it higher prices were here to stay unless the Fed itself did something about it. So the Fed began raising interest rates, which immediately sparked concerns about a slowdown and even stagflation.
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