Oil Prices Supported from China CB Action & CPI-Reinforced Bets for a Fed Hold
USOIL Analysis
USOil started the week with a steep slump extending its losing streak into the third day due to various reasons, including Iran nuclear deal hopes and poor Chinese data. However, newer developments helped it stage a rebound on Tuesday, staying on front foot today as the pivotal Fed rate decision looms.
According to Reuters, Iran's supreme leader said that there is nothing wrong with a deal with the West, around the country's nuclear program [1]. This sparked hopes and reports for an agreement that could unlock its oil exports, weighing on oil prices. However, the US State Department denied such reporting, with its spokesperson saying "that is completely false". [2]
Downbeat economic data from China continued to come in recently, with the inflation data disappointing again, but as I had noted in the last analysis, this could cause authorities to provide more stimulus. Indeed, the central bank (PBoC) cut a key short-term policy rate on Tuesday and focus now shifts to medium-term lending facility rate, helping oil prices. [3]
The latest CPI inflation report from the US was also supportive. Headline inflation decelerated to the lowest level in more than two years and core posted its smallest increase since late-2021. This reinforced markets expectation for a Fed hold later today, after ten consecutive rate increases, diminishing risk for a surprise. This cannot be ruled out though, especially given recent central bank activity.
The June OPEC monthly report meanwhile showed that the organization raised marginally its 2023 demand outlook, expecting to increase of 2.35 million barrels per day (from 2.33 mbpd previously) [4]. Consumption from China and massive output cuts by the group and its allies (OPEC+) are expected to lead to tighter oil market in the second half of the year.
USOil remains upbeat today and eyes the EMA200, although the recent visits above it have proved short-lived. As such a new catalyst would be needed for a convincing break above 74.74. On the other hand, the decline of the previous days keeps the 2023 lows in play (63.63), but sustained weakness at an below that region continue to look difficult.
Nikos Tzabouras
Senior Financial Editorial Writer
Nikos Tzabouras is a graduate of the Department of International & European Economic Studies at the Athens University of Economics and Business. He has a long time presence at FXCM, as he joined the company in 2011. He has served from multiple positions, but specializes in financial market analysis and commentary.
With his educational background in international relations, he emphasizes not only on Technical Analysis but also in Fundamental Analysis and Geopolitics – which have been having increasing impact on financial markets. He has longtime experience in market analysis and as a host of educational trading courses via online and in-person sessions and conferences.
References
| Retrieved 14 Jun 2023 https://www.reuters.com/world/middle-east/irans-khamenei-says-nothing-wrong-with-nuclear-deal-with-west-2023-06-11/ | |
| Retrieved 14 Jun 2023 https://www.state.gov/briefings/department-press-briefing-june-13-2023/ | |
| Retrieved 14 Jun 2023 http://www.pbc.gov.cn/en/3688110/3688181/4953385/index.html | |
| Retrieved 02 May 2024 https://www.opec.org/opec_web/en/publications/338.htm |
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