Trading Signals 05/02 – 09/02
Oil Market Optimism: What to Expect in the Future?
Brent futures ended last week on a positive note, reaching $94 per barrel. Current levels are close to fair value, making further steady growth seem unlikely. However, with short-term positive catalysts, prices could potentially spike temporarily around the psychological mark of $100. Such catalysts could be new reports of disruptions in production facilities due to force majeure events or weather conditions.
Production cuts by Saudi Arabia and Russia will lead to a significant market deficit in the fourth quarter, the International Energy Agency (IEA) reported on Wednesday, September 13.
The tightening oil balance will remain the dominant price-driving factor until the end of 2023. Additionally, concerns about supply shortages are pushing up quotations as producers firmly adhere to production limits.
The Organization of the Petroleum Exporting Countries (OPEC) maintained its forecast for global oil demand growth in 2023, expecting an increase of 2.44 million barrels per day compared to last year’s levels, reaching 102.06 million barrels per day, according to the cartel’s monthly report.
Demand forecasts have been lowered only by the EIA, with the agency expecting an average of $88.2 per barrel in 2024.
Analysts note that the oil market will appear quite tight over the next two to three quarters due to a supply deficit amidst high demand. Given the high geopolitical risks and uncertain economic backdrop, Saudi Arabia is expected to extend its production cuts into the first quarter of 2024.
U.S. consumer prices in August rose at the fastest pace in over a year, driven by a sharp increase in gasoline prices, according to statistics. However, the moderation in core inflation might prompt the Federal Reserve to maintain interest rates at their current levels in the September 20 meeting.
This week, market participants will be closely watching the upcoming Federal Reserve meeting. August inflation data did not shake the market’s confidence that the regulator will not raise the key rate on September 20. However, opinions on the November meeting are more varied, so the main intrigue will revolve around the message the Fed chairman will convey after the September gathering.
For oil prices, the Fed’s monetary policy is a crucial factor in assessing the prospects of the global economy and fuel demand. While the relationship is complex, and no one can be certain about which rate will significantly harm the economy, the market always views rate hikes with concern and responds positively to the status quo.
According to the CME FedWatch Tool, the probability of a rate hike in the November meeting is estimated at a modest 27%, and 34% in December.
U.S. Drilling Activity
Drilling activity in the U.S. stagnated for over half a year and began to decline in May. The surge in the past two weeks seems to be a one-off event and doesn’t warrant a significant revision of forecasts. However, a continuation of this trend might influence the market’s perception of U.S. production prospects.
The EIA anticipates that by December 2023, production will increase to 13 million b/d. In the first half of 2024, it will add 100,000 b/d, and in the second half, another 350,000 b/d.
Oil Trading and Risk Management
Oil price fluctuations are influenced by numerous factors. There are various ways to invest or trade in oil, such as investing in oil stocks and oil ETFs or even trading CFDs on crude oil. However, as a novice trader, you need to be vigilant about managing your budget and, more importantly, your risks. Incorrect decisions can lead to a loss of funds, jeopardizing your financial plan and objectives.
To mitigate the likelihood of mistakes, familiarize yourself with risk management tools. Brokers offer a wide array of educational resources, including e-books, webinars, and hands-on articles penned by seasoned professionals. Knowledge is power, so we’d like to emphasize the utmost importance of being prepared when the markets start moving against you. Minimizing risk will grant you some peace of mind and allow you to enjoy trading.