oil price
International energy experts said that after the Federal Reserve decided to fix the key interest rate, oil prices will move towards more volatility in the coming period, while pointing out that there are other factors leading to such volatility.
On Wednesday, the Federal Reserve decided to fix its key interest rate between 5% and 5.25% for the first time since January 2022, and expects two rate hikes of 25 basis points each before the end of 2023.
10 rate hikes by the Fed through March 2022, resulting in annual U.S. inflation falling to 4% in May last year after reaching its highest level in about 4 years in mid-2022, above 9%, but still far from the Fed’s 2% target.
Balancing risks to the economy with the continuation of the fight to contain inflation, the rate-setting Federal Open Market Committee said in a closing statement of its meeting over the past two days that “keeping the target range for rates unchanged allows the committee to assess any additional information and its implications for policy .”cash”.
Bank of America, which monitors oil on Wall Street, cut its forecast for oil prices, signaling no gains this year, as JPMorgan cut its price target for Brent crude by 11 percent in the second half of the year to $82 a barrel in its latest report on Wednesday. .
Earlier this week, Goldman Sachs cut its oil price forecast for the third time in six months, as a well-supplied market and uncertainty about the global economy raised concerns about the future of oil. demand, as it expects Brent crude prices to rise to $86 a barrel in December next year, from a previous forecast of $95.
In turn, the Organization of the Petroleum Exporting Countries (OPEC) maintained its forecast for global oil demand growth of 2.35 million barrels per day this year for the fourth straight month in its monthly report released on June 13. continuous. Outside 2023, 1.4 million barrels per day.
In the oil market report released yesterday and Wednesday, the International Energy Agency raised its forecast for oil demand growth this year to a record high, supported by China’s consumption growth, and said: “Global demand for oil will increase to a daily 102.3 million barrels per day.” This year, annual growth is expected to be 2.4 million barrels per day, compared with last month’s estimate of 2.2 million barrels per day.
A step towards measuring market interaction
International energy consultant Amer Al-Shoubaki said in an interview with “Sky News Arab Economics”: “The Fed’s decision to fix interest rates is in line with expectations, because this decision is a step to measure the degree of economic development. The extent of the impact of interest rates has affected the U.S. banking industry in the past. As for the impact of this decision on oil prices, we will see more price volatility in the coming period, but in general, the impact of oil prices cannot be limited to interest rates. other factors.
The Political Dimension of Jerome Powell’s Statement Affecting Oil Prices
Al-Shobaki believes that Fed Chairman Jerome Powell’s statement expecting further rate hikes (two hikes of 25 basis points each before the end of the year), that is, further tightening of monetary policy, is not important for the market. This is not good news for the global economy, indicating that his statement has political aspects in addition to factors, which will affect oil prices, the economy and the sentiment of traders and speculators in the oil market.
So for the first session this morning, oil prices haven’t been affected much because the gains are very small, about half a percentage point, and if Jerome Powell doesn’t finish his speech on what to expect from the upcoming Fed meeting, it should be Will rise even more, according to Shobaki.
mixed economic indicators
As for other factors affecting oil prices, Al-Shobaki, an international energy consultant, added: “Economic activity in China has a significant impact on oil prices, as China is expected to account for 50% of oil demand growth and is expected to be measured by industrial production and retail sales. Two important indicators of the level of economic activity. The industrial production index rose by less than expected 3.5% in May against expectations of 3.6%. The retail sales index fell to 13 points compared to 18 points in April, which will lead to volatility in oil prices.
The European Central Bank also raised interest rates by 25 basis points to 4%, the eighth consecutive hike since last year, and the market is looking forward to tomorrow’s Bank of Japan meeting as rates are expected to be fixed, which means economic indicators are mixed, according to Shobaki .
Expected recession to weigh on oil until end-2023
In an exclusive statement to Sky News Arab Economics, Tariq Al-Rifai, executive director of the Corum Research Center in London, said: “The Fed’s fixed interest rates indicate that inflation is the main reason for the Fed’s approach to raising interest rates over a period of several months. In the past, Inflation is benign as we’re seeing now which prompted the Fed to set rates at its last meeting and if much of the inflation is due to higher oil prices which in turn lead to higher prices for other commodities now We noticed that the prices of all commodities including oil are falling. This means that the Fed expects a slowdown in the economic growth of the United States.
Al-Rifai pointed out that the expected slowdown in US economic growth, coupled with the slowdown in China’s economic activity, the stagnation of the German economy and the possibility of recession in other European countries, will put pressure on oil prices in the next stage. Specifically, by the end of this year, oil prices are expected to decline. Excluding oil prices will rise above $85 a barrel.
Al-Rifai expects oil prices to fluctuate between $70 and $80 a barrel by the end of the year, but if the U.S. economy falls into recession, Al-Rifai expects oil prices to fall below $70 a barrel.
limited impact
Dr. Mamdouh Salameh, a global oil expert based in London, confirmed in an interview with Sky News Arab Economy that the Fed’s decision not to raise interest rates has very limited impact on oil prices and global demand for oil, indicating that despite the Fed’s warning that it may not be able to Not raising rates twice this year gives it time to assess the impact of its fiscal policy and rate hikes on inflation.
“Potentially sparking a global banking or financial crisis, moreover, these concerns are behind continued pressure on oil prices.
Oil demand is not recovering
Dr Carol Nakhle, CEO of Cristol Energy, said: “The Fed paused rate hikes at its last meeting in order to gauge the economy’s response to its decision to raise rates over a relatively long period of time, so the impact requires more time to show up.”
Speaking to Sky News Arab Economy, Dr Nakhla explained that she does not expect the Fed’s decision to fix interest rates to lead to a recovery in oil demand, which she sees as a temporary decision that will not have any impact. Notable impact on markets, especially since the Fed has signaled that it will continue to raise interest rates in the coming months.