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While analysing markets FXMAG.COM wondered, what would analysts address recent crude oil decline to. Let's hear from FxPro analyst, who shares his view on this one.
Alex Kupstikevich (FxPro): Oil is in a situation where both very positive and negative news puts pressure on the price. And only moderately positive data supports it.
Oil has been under sustained selling pressure since the beginning of last week and remains in a longer-term downtrend as high-interest rates and fears of an imminent recession in many developed countries suppress risk appetite.
It is important to note that data on consumer activity in the US and Europe and the global labour market has continued to exceed analysts' and market participants' forecasts, suggesting resilience in demand. We can attribute these economic surprises to the fact that oil has managed to avoid the apparent downward trend from June to September last year. A strong labour market typically implies increased fuel demand, so many speculators have been slow to open bearish bets. Prices have also been supported by occasional verbal interventions from Russian or OPEC officials, which suggest an impending shortage of oil or oil products.
On the other hand, it is difficult for oil to rise when the world's central banks have announced a crusade against inflation. A string of solid data, combined with signs that inflation has become more 'sticky', has led to a tightening of the rhetoric from regulators. Markets are now pricing in higher interest rates in the coming months.
Read next: Acccording to FXPro's analyst, near-term global outlook for USD remains bullish | FXMAG.COM
However, it is essential to remember that monetary policy operates with up to 6 months lag, and the effects of last year's hikes are far from being felt in the economy. These concerns dampen market risk appetite by preventing better-than-expected statistics from fully materialising.
