Anxiety over a Fed-induced US recession - as the central bank battles stagflation - have prompted a plunge in prices in the energy complex.
With Atlanta Fed's GDPNOW model now forecasting a recession has started - and inflation expectations rising - FedSpeak this morning confirmed their hawkish commitment to 'whatever it takes' to slay the inflation dragon, whether that means sparkjng a recession or not...
WTI prices fell back below $110, but remain above the Biden SPR plan levels...
Wholesale Gasoline prices are down hard this morning also...
The SPDR S&P Oil & Gas Exploration & Production ETF dropped 7.2% (entering bear market territory) and is on pace to fall for an eighth day, which would mark its worst string of declines since June 2020.
The S&P 500 Energy Index is down 16% this week and on pace for its worst weekly decline since March 2020's COVID lockdowns.
In the short-term, this should be good news for the average joe (and 'big guy' Joe) as wholesale gasoline and oil prices will lead to a drop in retail prices...
While demand is expected to grow (as China re-opens), supply remains considerably restrained (and Biden's mulling of export bans are unlikely to help that supply situation), however, all the monetary jawboning this week has refocused traders in the short-term...
“Oil markets have focused on macro this week,” said Keshav Lohiya, founder of consultant Oilytics.
“However, we wonder what 25 basis point or even 50 basis point increases will do when the bulk of the inflation is coming from commodities.”
As the war in Ukraine continues, the focus remains on the extent to which Russian oil flows will be altered. On Friday, the country’s Deputy Prime Minister Alexander Novak said throughput at the nation’s refineries could fall 10% this year.
Bloomberg reports that while the market is reacting monetary-policy tightening, the decline may be short-lived as the market remains very tight and demand for crude is still growing.
Europe needs more barrels to substitute Russian oil, the US is weighing a ban on crude exports to support the local market and fight high gasoline prices, and we’re witnessing more production outages across the globe.
One key point to watch is Libya, which produces the light and sweet crude that European buyers like.
Earlier this week Oil Minister Mohamed Oun told Bloomberg that the country has lost almost all of its production and is pumping only about 100,000 barrels a day.
Another source of light and sweet crude - Kazakhstan’s Kashagan field - is shut for maintenance but should gradually come back from beginning of July.
All that comes at a time when China is recovering from the pandemic and needs more crude and products.
Finally we note that The IEA said Wednesday that global oil supply will struggle to meet rising demand next year.