Crude prices fell sharply this week as Inventories in the US increased, concerns over global economic recession grew, and rumors about the resurgence of the coronavirus in China have increased. However, Thursday’s US inflation numbers changed the market sentiment.
Coronavirus spreading in China was one of the determining factors for the Oil price in recent weeks, as it is the biggest world energy, importer. Last week we had some reports that the Chinese government would ease Covid measures, which increased the Oil demand and prices. On the other hand, weaker-than-expected factory activity data in China again increased the fears of global economic recession.
Wall Street’s main indexes raised sharply on slower consumer prices.
On the inventory front, while US Strategic Petroleum Reserve (SPR) is at its lowest historical levels, US crude oil inventories increased by 5.618M according to the API report, and 3.925M barrels according to the EIA weekly report for the week ended November 4. This is while continuing Biden’s plan to release the US Strategic Petroleum Reserves, US SPR fell to its historical levels.
After all, while Oil started a week around $92, later with increasing concerns over the global economic recession and rumors about the resurgence of the coronavirus in China, Oil prices fell for the last four days. However, Thursday’s US inflation numbers changed the market sentiment, as with easing the inflation, hopes of less hawkish policies lifted the stock markets.
On Thursday, Wall Street’s main indexes raised sharply on slower consumer prices.
According to the Labor Department, October consumer prices advanced 7.7% annually, less than 8.2% of September, and 8% estimates. Also, the core rate, which excludes volatile food and energy prices, increased 6.3% on a year-on-year basis last month, down from 6.6% in September. If we consider annual inflation as the basis, it is the fourth consecutive month of declining inflation and it shows sequential improvement. After some Fed officials’ comments on slower rate rises over coming meetings, with these numbers, now a 50 bps rate hike looks more logical for the December meeting.
On the other hand, any kind of softening signals can increase a long time of high inflation concerns. As IMF Director, Kristalina Georgieva also told, the biggest challenge facing central bankers now is bringing inflation down. The Fed’s policy rate is currently in a range of 3.75%-4.00% and 4.6% is the policymaker’s goal which was determined a couple of months ago.
According to the mentioned news, reports, and data, we can say that oil does not have much room to decrease, while the reasons for maintaining these prices and even relative growth seem more understandable. From the technical point of view, as you can see in the below figure, the downtrend is ended, but bulls also, are not confirmed, yet. Main resistance currently sitting at $94.