Forex Analysis & Reviews: 07.03.2023 - Where to find refuge:...

07.03.2023 11:49 PM

Where to find refuge: indecisiveness in the oil market

The price of crude oil has been in limbo. The fluctuations come against the backdrop of an upcoming important event that could seriously affect not only commodities, but also other markets. We are talking about the head of the Federal Reserve. Moreover, market participants are determined to receive clear signals about how the monetary policy in the country will change. This topic has been bothering them for the past few weeks.

So far, prices are unstable and highly susceptible to negative trends. Today, the value has mostly decreased, although it's nothing fatal yet, since it managed to strengthen well over the previous days.

Further movements will be clear after Fed Chairman Jerome Powell will present the next report of the U.S. central bank.

Brent crude oil for May delivery fell by 0.75% at $85.53 a barrel on the London ICE Futures Exchange.

The West Texas Intermediate (WTI) for April delivery also fell by 0.78% to $79.83 a barrel on the New York Mercantile Exchange. This level is still quite high and does not cause panic among market participants.

At the same time, morning trading reflected the growth of oil prices, which, however, could not strengthen and become a trend for the day. We can only hope that oil prices will not fall further.

Investors are closely watching what is happening in the United States of America. Powell is set to deliver speeches in Congress for two days. The most important point will be signals about a change in the course of monetary policy. Oil is highly dependent on which way the Fed decides to go. First of all, it is worth remembering that an increase in the level of the base interest rate will have an extremely negative impact on the oil market, as well as on other commodities. Oil prices will inevitably go down, and this threatens with serious consequences.

Most analysts have already spoken out about possible changes. The main part believes that the Fed will follow through with a 25 bps rate hike. This will lead to an increase in the rate to the level of 4.75-5%.

However, there are several other events that are no less important for the oil market.

Firstly, the situation around Saudi Arabia attracts a lot of attention, namely, the country's decision to raise the level of selling prices for the export of petroleum products. In particular, we are talking about April deliveries to Asia and Europe. The increase will be from 0.3 to 1 dollar per barrel, depending on the region-importer. Recall that this is the second consecutive increase from Saudi Arabia. It is dictated mainly by the growing demand for oil. This growth can force prices in the markets to go up.

Secondly, the Russian export of hydrocarbons causes concern. The country has already announced a voluntary production cut of 0.5 million barrels per day, but in reality this figure turned out to be much more. Last week, production fell by 3.1 million barrels per day. While this event looks more like an isolated case, however, no one can guarantee that this will not be repeated in the future and will not become a trend. This also potentially drives up the cost of raw materials.

In general, the situation on the market is still favorable, but at the same time, a bit uncertain. Oil will calm down and hold steady only after Powell's speech, and only if the central bank does not present some kind of surprise.

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*Disclaimer: The market analysis posted here is meant to increase your awareness, but not to give instructions to make a trade.