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(The views and opinions expressed in this article are those of the attributed sources and do not necessarily reflect the position of Rigzone or the author)
One of Rigzone’s regular market watchers takes a look at reaction to the latest Fed policy, oil price trends, what to watch out for this week and more. Read on for more detail.
Rigzone: What were some market expectations that actually occurred during the past week – and which expectations did not?
Barani Krishnan, Senior Commodities Analyst at uk.Investing.com: Oil bobbed at around $90 per barrel for U.S. crude and a little under $95 for Brent, as expected. There were two surprises though for the week – the market’s response to the latest Federal Reserve policy and Russia’s announcement that it was banning fuel exports.
Rigzone: What were some market surprises?
Krishnan: Despite the shock value of the Russian fuel export ban, crude prices saw their first weekly loss in four on Friday, impacted more by the Federal Reserve’s indication from earlier in the week that it will likely raise interest rates one more time before the end of the year – and anytime later when inflation gets out of hand.
‘We are prepared to raise rates further, if appropriate,’ Chairman Jerome Powell told a news conference on Wednesday after the September policy meeting of the Fed, where the central bank left rates unchanged at a peak of 5.5 percent. ‘The fact that we decided to maintain the policy rate at this meeting doesn’t mean we have decided that we have or have not at this time reached that stance of monetary policy that we are seeking’.
The Fed has two more policy meetings left for this year – in November and December. Markets are trying to guess which month the central bank would pick for what would be its last hike for 2023. The Fed’s Summary of Economic Projections projects another quarter-percentage point rate increase by the year-end. That traders were still hanging on to the Fed’s words from Wednesday as the week closed, rather than being jolted to the upside by the Russian fuel export ban, shows that the three-month old oil rally, though far from over, was beginning to show signs of fatigue.
Economists fear that a renewed hawkish stance by the Fed will dampen global growth, though many also agree that a lid has to be put on oil prices if the central bank is to achieve its target of bringing inflation back to an annual growth of two percent from current levels of 3.7 percent. The Fed raised interest rates 11 times between February 2022 and July 2023, adding a total of 5.25 percentage points to a prior base rate of just 0.25 percent. The central bank has forecast that U.S. rates will trend around 5.1 percent through 2024.
Last week, the dollar hit six-month highs while U.S. bond yields, led by the return on the 10-year Treasury note, soared to 16-year peaks as the Fed maintained projections for another hike before the end of 2023. Along with the Fed, the Bank of England kept rates unchanged, as did the Bank of Japan. The European Central Bank, meanwhile, signaled it was done with hikes, after raising rates by a quarter point for a tenth time. Inflationary pressure could still decide different outcomes for them months down the road.
The combination of higher interest rates, a higher dollar and higher bond yields have often been a Kryptonite to any risk rally, including in commodities and oil. Each time all three worked in unison, to the extent of creating fears of recession, the economy has slowed, applying brakes as well on demand.
Rigzone: What developments/trends will you be on the lookout for this week?
Krishnan: Continued challenges to the upside in oil despite the momentum being on the side of the bulls.
To contact the author, email andreas.exarheas@rigzone.com
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