Is Oil Flashing a Warning Sign?
Is Oil Flashing a Warning Sign?
Yes, and here are the reasons. Oil markets are sensing tensions around slowing global growth, an easing of the oil supply crunch, and an uncertain trajectory for China as it grapples with a Chine Covid zero policy.
Slowing global growth
If global growth continues to slow and a US recession is ahead that will reduce demand for oil. Although a US recession is not a ‘done deal’ Jerome Powell stated at the Semi-Annual testimony that it was a ‘possibility’. The lingering fear is that one of the consequences of the Fed fighting inflation so resolutely will be a sharp slow down in US growth that prompts a recession.
Easing oil supply crunch
There are some beliefs in the market that China and India are purchasing more Russian oil than the US previously believed. This takes some of the pressure off the oil market and can allow some of the bullish pressure to dissipate.
China’s Zero COVID policy
In case you are confused as to why China is holding onto its COVID Zero plan then you can read the good reasons here. However, this still means that If new infections flare-up in China that demand can rapidly be reduced, further weakening oil prices
So, there are the main reasons that oil prices have been pushed lower. However, traders should be aware that oil future markets remain in backwardation as ongoing supply issues can mean dip buyers step back into steep oil declines. So, for now, oil is a key market to watch as a barometer for global recession fears as central banks embark on a fast tightening trajectory.
About: HYCM is the global brand name of HYCM Capital Markets (UK) Limited, HYCM (Europe) Ltd, HYCM Capital Markets (DIFC) Ltd and HYCM Limited, all individual entities under HYCM Capital Markets Group, a global corporation operating in Asia, Europe, and the Middle East.
High-Risk Investment Warning: Contracts for Difference (‘CFDs’) are complex financial products that are traded on margin. Trading CFDs carries a high degree of risk. It is possible to lose all your capital. These products may not be suitable for everyone and you should ensure that you understand the risks involved. Seek independent expert advice if necessary and speculate only with funds that you can afford to lose. Please think carefully whether such trading suits you, taking into consideration all the relevant circumstances as well as your personal resources. We do not recommend clients posting their entire account balance to meet margin requirements. Clients can minimise their level of exposure by requesting a change in leverage limit. For more information please refer to HYCM’s Risk Disclosure.
20220624
