Oil Markets Look Set to be Oversupplied by Next Year
This week started with equity markets surging, making new highs. However, it was hard for many investors to invest at these elevated prices with little in the way of major news. At some stage equity markets are due a pullback and keeping an eye on volatility via the VIX is quite a good indicator for showing how deep any pullbacks may be. In energy markets, there was some relief on the prospect of prices after the EIA’s short term outlook shows that oil markets are set to be oversupplied next year indicating that oil prices may be lower in 2022. Next week investors need to watch for geopolitical risks rising from tensions over Taiwan between China and the US as well as Brexit wrangles between the EU and the UK.
Other key events from the past week
- * US oil: Dovish EIA report, Nov 09: A dovish EIA report this week has ironically driven prices higher. Why? It is because the EIA report meant President Biden was less likely to release strategic US oil reserves into the oil market. However, medium-term this is bearish news for oil.
- * USD: Inflation print, Nov 10: The headline CPI reading for the US was +6.2% y/y vs the 5.8% that was expected. The core month on month reading was high too coming in at +0.6% m/m vs +0.4% expected. These inflationary fears drove gold higher and traders should watch the Fed don’t change their mind on rates.
- * AUD: Employment print, Nov 11: The RBA board require the labour market to be tight enough to generate wage growth. The print this week was a bad disappointment with the headline reading of -46.3K vs 50K expected. This means more patience for the RBA who don’t expect to raise rates until 2024.
Key events for the coming week
- * AUD: Monetary Policy Minutes, Nov 16: The RBA was ‘hawkish indeed, but dovish in word’ at their last meeting. Will the minutes show any further clues as to their more dovish rate policy decision from earlier in the month?
- * Seasonal trades: Gold, November 19: Gold rises seasonally from mid-November through to the end of February. With stagflationary fears growing, is this the perfect time to buy gold? Check out the seasonal pattern here.
- * GBP: Inflation, Nov 17: The Bank of England sees inflation rising to a peak of 5% next spring. Any low inflation readings will be welcomed by the BoE and take pressure off the bank to increase interest rates.