USOIL Helped by Dovish Fed but COP28 Pledge to Move Away from Fossil Fuels is a Headwind
USOIL Analysis
The US Fed maintained rates at 5.25-5.50% on Wednesday and although Chair Powell kept more tightening in play, he essentially admitted that officials are talking about prospects of rate cuts. More to it, they now expect a faster decline in rates. They median 2024 rate was lowered to 4.6%, suggesting at least three cuts or 90 basis points worth. [1]
The dovish stance by the Fed and prospects of lower rates after the massive tightening of the last couple of years, helped USOil halt its seven-week losing streak, the worst in five years. Furthermore, OPEC+ members recently announced additional supply curbs for Q1 2024, which could further support prices. USOil has the opportunity to reclaim the EMA200 (at around 75.50) and pause the bearish bias. However, the upside contains multiple hurdles and it does not inspire confidence at this stage for broader recovery above 79.00 and the descending trend line from the 2023 peak.
The recent slump in prices appears stretched and OPEC blamed it to "exaggerated concerns" around demand, which "negatively impacted market sentiment", according to last week's monthly report [2]. The International Energy Agency (IEA) though, projects global demand growth to halve next year to 1.1 million barrels/day, highlighting the recent rift between the two organizations. [3]
There are also long-term headwinds posed by the COP28 call to transition away from fossil fuels and triple renewables by 2030 [4]. Although there was no explicit commitment for phasing out oil, coal and gas, this is still a landmark agreement that sends a strong signal. This energy transition is partially responsible for the recent consolidation in the energy industry, with the M&A activity from ExxonMobil, Chevron and most recently Occidental, which intends to buy CrownRock for 12 billion. However, these agreements also show that at least US companies are still committed to fossil fuels.
Given the above headwinds and the fact that Fed's Williams walked back the rate curt talk on Friday, can constrain USOil. Speaking on CNBC, the NY Fed President said "we aren't really talking about rate cuts right now" trying to reframe the conversation and push back against aggressive market expectations [5]. USOil remains in a perilous spot and vulnerable to its 2023 lows (63.63), but strong catalyst would be needed for a breach.
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 18 Dec 2023 https://www.federalreserve.gov/monetarypolicy/fomcpresconf20231213.htm | |
| Retrieved 18 Dec 2023 https://www.opec.org/opec_web/en/publications/338.htm | |
| Retrieved 18 Dec 2023 https://www.iea.org/reports/oil-market-report-december-2023 | |
| Retrieved 18 Dec 2023 https://www.cop28.com/en/news/2023/12/COP28-delivers-historic-consensus-in-Dubai-to-accelerate-climate-action | |
| Retrieved 27 Apr 2024 https://www.youtube.com/watch |
Any opinions, news, research, analyses, prices, other information, or links to third-party sites contained on this website are provided on an "as-is" basis, as general market commentary and do not constitute investment advice. The market commentary has not been prepared in accordance with legal requirements designed to promote the independence of investment research, and it is therefore not subject to any prohibition on dealing ahead of dissemination. Although this commentary is not produced by an independent source, FXCM takes all sufficient steps to eliminate or prevent any conflicts of interests arising out of the production and dissemination of this communication. The employees of FXCM commit to acting in the clients' best interests and represent their views without misleading, deceiving, or otherwise impairing the clients' ability to make informed investment decisions. For more information about the FXCM's internal organizational and administrative arrangements for the prevention of conflicts, please refer to the Firms' Managing Conflicts Policy. Please ensure that you read and understand our Full Disclaimer and Liability provision concerning the foregoing Information, which can be accessed here.